T C S T L I C A S M BIJURALISM FOR THE EU? · A Successful Model of Bijuralism for the EU? Jan Jakob ... supported my plan to go to Canada in many important ... whose research grant

THE COORDINATION OF SECURED TRANSACTIONS LAW AND

INSOLVENCY IN CANADA:A SUCCESSFUL MODEL OF BIJURALISM FOR THE EU?

by

Jan Jakob Bornheim

A thesis submitted in conformity with the requirementsfor the degree of Master of Laws (LL.M.)

Graduate Department of LawUniversity of Toronto

Copyright c© 2010 by Jan Jakob Bornheim

Abstract

The Coordination of Secured Transactions Law and Insolvency in Canada:A Successful Model of Bijuralism for the EU?

Jan Jakob BornheimMaster of Laws (LL.M.)

Graduate Department of LawUniversity of Toronto

2010

This paper deals with the interaction of insolvency and secured transactions law in a “bi-

jural” jurisdiction, composed of sub-jurisdictions that come from different legal origins. It

gives an introduction to bijuralism and then examines an example, namely the interaction

of Canadian insolvency law and provincial secured transactions law. It stresses the different

origins of Anglo-Canadian law and Québec law, in particular the difference in property law

between the two and how it affects secured transactions law. It argues that given these fun-

damental differences, the provinces have achieved a relatively harmonized secured transac-

tions law. The paper goes on to compare the interaction in Canada with the interaction of

European law and the law of EU member states. While the Canadian experience can serve

as an example for the interaction in Europe, it also demonstrates shortcomings that need to

be addressed in Canada as well as by a European insolvency legislator.

ii

Acknowledgements

I have to thank both my LL.M. supervisor, Professor Tony Duggan for guiding my researchin the proper direction, giving me countless tips where to look for inspiration, and beingpatient with me, as well as my doctoral supervisor, Professor Heinz-Peter Mansel whosupported my plan to go to Canada in many important ways. Furthermore, I am grateful tothe Wilhelm-Westhaus-Stiftung, whose research grant enabled my trip to Canada. Finally, Iam most thankful to Ms. Renate Lüderitz and the late Professor Alexander Lüderitz, whosegenerous scholarship through the Lüderitz-Stiftung made it possible for me to study at theUniversity of Toronto.

iii

Table of Contents

Abstract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iiAcknowledgements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iiiTable of Contents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iv

§ 1: Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1§ 2: Bijuralism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

I. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4II. The Concept of Bijuralism . . . . . . . . . . . . . . . . . . . . . . . . 4III. The Historic Origin of Bijuralism in Canada . . . . . . . . . . . . . . . 5IV. Bijuralism and Law and Economics . . . . . . . . . . . . . . . . . . . . 6

A. The Economics of Legal Systems . . . . . . . . . . . . . . . . . . 6B. The Economics of Bijuralism . . . . . . . . . . . . . . . . . . . . 7

V. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9§ 3: Estate and Patrimony . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

I. The Estate in Common Law . . . . . . . . . . . . . . . . . . . . . . . . 10II. Patrimony in Civil Law . . . . . . . . . . . . . . . . . . . . . . . . . . 11

§ 4: Secured Transactions in Anglo-Canadian Law on Personal Property . . . . . 12I. Historical Credit Securities in Common Law Systems . . . . . . . . . . 12II. The Concept of a Security Interest in the PPSA . . . . . . . . . . . . . . 14

A. Concept . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14B. Criticism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

III. Rights Deriving from a Security Interest . . . . . . . . . . . . . . . . . 16IV. Title Allocation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

§ 5: Secured Transactions in Québec Law on Movable and Incorporeal Property . 19I. Nature of Credit Securities . . . . . . . . . . . . . . . . . . . . . . . . 19

A. Classification of Credit Securities . . . . . . . . . . . . . . . . . . 19B. Accessory Nature . . . . . . . . . . . . . . . . . . . . . . . . . . . 19C. Common Pledge of Creditors . . . . . . . . . . . . . . . . . . . . 20D. No Presumption of Hypothec . . . . . . . . . . . . . . . . . . . . 21E. Classification of Real Credit Securities . . . . . . . . . . . . . . . 25

II. Prior Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25A. Nature of Prior Claims . . . . . . . . . . . . . . . . . . . . . . . . 25B. Certain Particular Prior Claims . . . . . . . . . . . . . . . . . . . 27

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1. Prior Claim of a Supplier . . . . . . . . . . . . . . . . . . . . 272. Right of Retention . . . . . . . . . . . . . . . . . . . . . . . 283. Property Taxes on Immovables . . . . . . . . . . . . . . . . . 29

III. Hypothecs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29A. The Hypothec in Roman Law . . . . . . . . . . . . . . . . . . . . 30B. Nature of the Hypothec . . . . . . . . . . . . . . . . . . . . . . . 31

1. Hypothec and Patrimony . . . . . . . . . . . . . . . . . . . . 312. Real Subrogation . . . . . . . . . . . . . . . . . . . . . . . . 323. Right to Follow . . . . . . . . . . . . . . . . . . . . . . . . . 33

C. Kinds of Hypothecs . . . . . . . . . . . . . . . . . . . . . . . . . 331. Classification of Hypothecs . . . . . . . . . . . . . . . . . . . 332. Hypothecs on Immovables and Movables . . . . . . . . . . . 333. Hypothec on Obligations . . . . . . . . . . . . . . . . . . . . 344. Hypothec on All Goods . . . . . . . . . . . . . . . . . . . . . 34

D. Opposability of the Hypothec . . . . . . . . . . . . . . . . . . . . 341. Publication . . . . . . . . . . . . . . . . . . . . . . . . . . . 342. Delivery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

a) Delivery and Real Hypothecs . . . . . . . . . . . . . . . 35b) Delivery of an Obligation . . . . . . . . . . . . . . . . . 35

IV. The Reform of Credit Securities in the New Civil Code . . . . . . . . . 38A. Policy Questions about Credit Securities . . . . . . . . . . . . . . 38B. Policy of the Reform . . . . . . . . . . . . . . . . . . . . . . . . . 38C. Policy and Substantive Content . . . . . . . . . . . . . . . . . . . 39D. Evaluation of the Reform . . . . . . . . . . . . . . . . . . . . . . 39

V. Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40§ 6: European Secured Transactions Law . . . . . . . . . . . . . . . . . . . . . . 43

I. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43II. Credit Securities on Movable and Incorporeal Property in Germany . . . 43III. Credit Securities on Movable and Incorporeal Property in France . . . . 44IV. Secured Transaction in Personal Property in England and Wales . . . . . 46V. Property Law and Secured Transactions in Scotland . . . . . . . . . . . 49

A. Scots Law of Secured Transactions . . . . . . . . . . . . . . . . . 49B. Sharp v Thomson . . . . . . . . . . . . . . . . . . . . . . . . . . . 49C. Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

VI. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52§ 7: Interaction of Insolvency Law and Provincial Law in Canada . . . . . . . . . 54

I. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54II. The Debtor’s Property: Giffen and Lefebvre . . . . . . . . . . . . . . . 56

A. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56B. Re Giffen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

1. Decision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 562. Criticism . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

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C. Re Lefebvre . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 591. Prior Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . 592. Re Lefebvre . . . . . . . . . . . . . . . . . . . . . . . . . . . 603. Re Ouellet . . . . . . . . . . . . . . . . . . . . . . . . . . . . 614. Ownership of the Trustee . . . . . . . . . . . . . . . . . . . . 63

III. Trustee and Property: Québec Civil Law and the Trustee . . . . . . . . . 64IV. Characterization of a Credit Security: Prior Claims . . . . . . . . . . . . 66

A. General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66B. State Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67C. Supplier Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . 67D. Property Tax Claims . . . . . . . . . . . . . . . . . . . . . . . . . 68

§ 8: Interaction of European Insolvency Law and the Law of the Member States . 69I. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69II. The Debtor’s Property . . . . . . . . . . . . . . . . . . . . . . . . . . . 69III. Trustee and Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70

A. Common Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70B. Civil Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70

1. Insolvency in Roman Law . . . . . . . . . . . . . . . . . . . 702. Divestment in Contemporary European Civil Law . . . . . . . 71

C. Harmonization . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72IV. Characterization of a Credit Security . . . . . . . . . . . . . . . . . . . 73

§ 9: Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76

Appendix A: Legislative Texts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81Code civil du Québec . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81Insolvency Regulation (EU) . . . . . . . . . . . . . . . . . . . . . . . . . . 84

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88

Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88France . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89Germany . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89United Kingdom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90

Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91

vi

§ 1: Introduction

In this paper, I examine the relationship between Canadian federal insolvency law and 1

provincial secured transactions and property law.1 My focus is on the Bankruptcy and Insol-

vency Act2. Not only is this a question of coordination between two levels of government,

federal and provincial, it is also a question of coordinating two distinct legal systems, the

Civil Law of Québec with its Code civil du Québec3 and the Common Law of all other

Canadian provinces and territories. Therefore, on a smaller scale, the Canadian legislator is

faced with the same challenges as a legislator in the European Union (EU).

In a preliminary step, I look at the concept of Canadian bijuralism, what it means, how 2

it developed and its current justification, including from an economic standpoint. The ex-

istence of two legal systems within Canada also necessitates a coordination of the private

law systems. Otherwise, barriers to inter-provincial commerce would be created. In this re-

spect, a comparison between the C.c.Q. and the provincial Personal Property Security Acts

(PPSAs) may show how to achieve such coordination to a certain degree without sacrificing

the particularities and origins of the respective legal systems. The coordination takes place

on at least three different levels. First, provincial legislation regarding secured transactions,

second, jurisprudence on provincial secured transactions law and third, on the level of fed-

eral insolvency law. Terminologically, I refer to the first two levels as “sub-levels”, whereas

1 Albert Breton/Anne Des Ormeaux, Coevolution as an Influence in the Development of Legal Systems in:“Bijuralism: An Economic Approach” ed. by Albert Breton/Michael Trebilcock (Aldershot: Ashgate,2006) at 128 point out that the differences between Common and Civil Law remain the most pronouncedin the area of property law.

2 Bankruptcy and Insolvency Act, R.S.C. 1985, B-3 (henceforth cited as BIA).3 Code civil du Québec, S.Q. 1991, c. 64 (henceforth cited as C.c.Q.).

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§ 1: Introduction

the latter one is the “meta-level”, for it encompasses the two sub-levels. The lessons learned

in Canada could serve as an example for European legislation and jurisprudence regarding

secured transaction on the sub-levels and for a trans-European insolvency legislation on the

meta-level.

In the first major part, I examine the differences between the two major constituent legal 3

systems of Canadian bijuralism. In particular, I look at the different approaches these legal

systems take towards the law of secured transactions involving personal (or movable and

incorporeal property) as collateral (henceforth, any reference to secured transactions refers

only to personal or movable and incorporeal property unless otherwise noted). In Canada,

the federal government started a programme to harmonize the federal law with provincial

private law, which led to the passing of the Federal Law-Civil Law Harmonization Act, No.

14 and the Federal Law-Civil Law Harmonization Act, No. 25. Because these efforts mostly

focussed on harmonizing the federal law with the law of Québec, I look at Québec law in

greater detail than at the law of the Common Law provinces. Then, I look at the situation of

secured transaction law in Europe and how it differs from Canada. I look at Germany and

France as the two archetypes of the two sub-families of Continental Civil Law,6 England

and Wales, as Europe’s biggest Common Law jurisdiction, and finally Scotland, because

the situation of Scotland as a Civil Law jurisdiction within the overwhelmingly Common

Law United Kingdom produces its own peculiar results.7

In the second part, I look at Canadian insolvency law and how it interacts with the law 4

4 Federal Law-Civil Law Harmonization Act, No. 1, S.C. 2001, c. 4 (henceforth cited as HarmonizationAct, No. 1).

5 Federal Law-Civil Law Harmonization Act, No. 2, S.C. 2004, c. 25 (henceforth cited as HarmonizationAct, No. 2).

6 See Konrad Zweigert/Hein Kötz, “Einführung in die Rechtsvergleichung auf dem Gebiete des Priva-trechts” (Tübingen: Mohr, 1996) at 68.

7 See re Scotland also William Tetley, Mixed Jurisdictions: Common Law vs. Civil Law (Codified andUncodified) (1999) 4 Unif. L. R. 591–620, 877–907 at 601–604.

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§ 1: Introduction

on secured transactions. Then, I analyze whether and to what the extent the interaction is

successful. Its success is measured according to the criteria developed in the preliminary

chapter. Then, I turn my attention at the developing trans-systemic insolvency law in Europe

and how it can benefit from the Canadian experience.

3

§ 2: Bijuralism

I. Introduction

In this chapter, I introduce the concept of “bijuralism”. I take two different viewpoints to 5

look at the genesis of bijuralism in Canada. First, I look at the historic origins of bijuralism

in Canada and how the continued existence of one great legal system, Québec Civil Law,

alongside the Common Law can be explained by reference to history. Then, I look at the

economics of bijuralism.

II. The Concept of Bijuralism

The term “bijuralism” means the co-existence of two different legal systems within one 6

jurisdiction.8 The term “mixed jurisdiction” is used to express a legal system which has

been influenced by institutions of other legal systems; in that sense, Québec or Scotland are

mixed jurisdictions to a certain extent.9 I use the term bijuralism in a narrower sense to refer

to an overarching jurisdiction which has embraced two legal systems that co-exist within

it. The obvious example for that scenario is the realm of Canadian federal jurisdiction,

which has to make reference to at least two legal systems, the Anglo-Canadian Common

Law system and the law of Québec. Bijuralism means that the Canadian federal legislator

must address two different audiences when legislating. Its law must pertain equally to the

8 Marie-Claude Gaudreault, Canadian Legislative Bijuralism: An Expression of Legal Duality (2006) 32Commonwealth Law Bulletin 205–219 at 205.

9 See Tetley, supra n. 7, at 591–594 in particular.

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§ 2: Bijuralism

Anglo-Canadian as well as Québec law.10 This is because the recognition of Québec Civil

Law in federal legislation is an expression of Québec’s status within the federation.11

III. The Historic Origin of Bijuralism in Canada

History influences the continuing existence of bijuralism on the Canadian territory.12 Be- 7

fore the British conquest, the Civil Law of France, as it was laid down in the Coutume de

Paris, was the law of the land in all of New France, including Québec,13 but also, e.g.,

Louisiana.14 While Québec had its connection with France cut before the introduction of

the Code civil des Français15, French legal ideas continued to be received in Québec.16

The legal landscape in Québec changed with the conquest by Great Britain.17 English and

Common Law legal concepts influenced Québec legal culture.18 However, Civil Law was

retained in the province of Québec, a concession which Great Britain had made both in the

Articles of Capitulation of Québec and the Treaty of Paris of 1763, and which was first in-

10 See e.g. Gaudreault, supra n. 8, at 205.11 Albert Breton/Michael Trebilcock, Introduction in: “Bijuralism: An Economic Approach” ed. by eid.

(Aldershot: Ashgate, 2006) at 1.12 See e.g. Gaudreault, supra n. 8, at 206.13 See Mario Dion, Evolution of Legal Systems, Bijuralism and International Trade in: “The Harmonization

of Federal Legislation with the Québec Civil Law and Canadian Bijuralism” ed. by Department of Justice(Ottawa: Department of Justice, Canada, 1997) at 41; Gaudreault, supra n. 8, at 206; Michel Morin,Introduction historique au droit civil québécois in: “Éléments de common law et aperçu comparatif dudroit civil québécois” ed. by Louise Bélanger-Hardy/Aline Grenon (Scarborough, Ont.: Carswell, 1997)59–68 at 62; Tetley, supra n. 7, at 606.

14 See Tetley, supra n. 7, at 608.15 Code civil des Français (henceforth cited as C.civ. (Fr.)).16 See Michel Morin, La perception de l’ancien droit et du nouveau droit français au Bas-Canada, 1774-

1866 in: “Droit québécois et droit français: communauté, autonomie, concordance” ed. by H. PatrickGlenn (Cowansville, Québec: Éditions Y. Blais, 1993).

17 Evelyne Kolish, “Changement dans le droit privé au Québec et au Bas-Canada, entre 1760 et 1840:Attitudes et réactions des contemporains (Thèse doctorale)” (Montréal: s.n., 1980); Michel Morin, Leschangements de régimes juridiques consécutifs à la Conquête de 1760 (1997) 57 R. du B. 689–700 Seegenerally.

18 See Jean-Philippe Garneau, Une culture de l’amalgame au prétoire: les avocats de Québec etl’élaboration d’un langage juridique commun au tournant des XVIIIe et XIXe siècles (2007) 88 Can.Historical R. 113–148; Michel Morin, Des juristes sédentaires?: L’influence du droit anglais et du droitfrançais sur l’interprétation du Code civil du Bas Canada (2000) 60 R. du B. 247–386.

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§ 2: Bijuralism

ternally statutorily enshrined in the An Act for making more effectual Provision for the Gov-

ernment of the Province of Quebec in North America19. The Quebec Act (1774) pursued the

goal of integrating the Canadiens into the British Empire and keeping them satisfied and

thus ultimately to secure their loyalty in the upcoming struggle in British North America.20

Civil Law remained a source of national identity in Québec ever since.21

IV. Bijuralism and Law and Economics

A. The Economics of Legal Systems

Bijuralism can be analyzed from an economic perspective. However, before one looks at 8

the economic analysis of bijuralism, one can analyze individual legal systems from the

economic perspective. For that, I focus on economic analysis of property rights in legal

systems because my paper deals with property law. In recent years, research increasingly

suggested that property rights are instrumental in the economic development of a country.22

Some authors even go so far as to suggest that, on average at least, Common Law jurisdic-

tions will flourish more than Civil Law jurisdictions because of the different property law

systems.23 The goal of secured lending is to increase the availability of credit, to make

credit less expensive, and to minimize the risk of credit for the creditor.24 Thus, secured

19 An Act for making more effectual Provision for the Government of the Province of Quebec in NorthAmerica (G.B.), George III. 14, c. 83 (henceforth cited as Quebec Act (1774)).

20 See principally Reginald Coupland, “The Quebec Act: A Study in Statesmanship” (Oxford: ClarendonPress, 1925) passim.

21 See Evelyn Kolish, “Nationalismes et conflits de droits: le débat du droit privé au Québec, 1760-1840”vol. 108 Cahiers du Québec. Collection Histoire (LaSalle, Québec: Hurtubise HMH, 1994).

22 See e.g. Daron Acemoglu/Simon Johnson/James A. Robinson, The Colonial Origins of ComparativeDevelopment (2001) 91 Am. Econ. Rev. 1369.–1401.

23 See Rafael La Porta/Florencio Lopez-de Silanes/Andrei Shleifer, The Economic Consequences of LegalOrigins (2008) 46 J. Econ. Lit. 285–332; see for an analysis on the impact of policies vs. legal institutionsPeter Blair Henry/Conrad Miller, Institutions versus Policies: A Tale of Two Islands (2009) 99 Am. Econ.Rev. 261–267.

24 Roderick Alexander Macdonald, Change of Terminology? Change of Law? (1992) 23 R.G.D. 357–372at 359.

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§ 2: Bijuralism

transaction seems to be largely determined by economic considerations. If these were the

only considerations in play, the research would speak for a complete abolition of Québec

Civil Law. However, this conclusion is premature for two reasons. First, as Allard argues,

an analysis of different legal systems that looks at the co-evolution and common origins

of some institutions throughout legal systems may allow a reasoned response to an attitude

that considers the Common Law as a priori superior to Civil Law from an economical per-

spective.25 In other words, whether Common Law is a priori economically superior is not

certain. Second, Breton and Trebilcock point out that the retention of one particular legal

system may pursue goals that transcend purely economic and transactional considerations;

one example of these goals they name is nation-building.26 As seen above, as a result of

history, the retention of Civil Law was aimed towards nation-building.27 Therefore, fol-

lowing Breton and Trebilcock’s argument, the retention of Civil Law in Québec should not

be rejected as transactionally and economically inefficient because it has a valid additional

purpose. However, it should follow as well that the Civil Law system in Québec should not

be more “inefficient” than necessary for this additional purpose.

B. The Economics of Bijuralism

The economics of bijuralism analyzes the interaction of two legal systems. Classical theory 9

in law and economics holds that a certain society or sub-group of people will reach a set

of rules that minimizes the transaction costs for this sub-group and thus be the optimal

legal system for this group.28 However, this model does not take into account that groups

25 France Allard, Commentary E on Breton and Des Ormeaux in: “Bijuralism: An Economic Approach”ed. by Albert Breton/Michael Trebilcock (Aldershot: Ashgate, 2006) at 157–159.

26 Breton/Trebilcock, Introduction, supra n. 11, at 2.27 See para. 7 on p. 5.28 James Bowers, The Elementary Economics of Bijuralism: A First Cut (2002) 52 J. Leg. Ed. 68–74 at 68–

69.

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§ 2: Bijuralism

trade with each other, and that rules optimal for internal transactions are not optimal for

external transactions.29 The less dependent a group is on external trade, the more likely is its

domestic law to favour internal trade, and discriminate against external agents.30 However,

a look at the US tells us that that is not the case. Louisiana, which is largely dependent on

inter-state trade, has the least uniform legal system within the US, whereas California, one

of the most economically self-reliant states, has made a lot more effort to harmonize its law

with other US states.31 Within the US, this is partly due to the availability of contractual

choice-of-law provisions, which allow agents in inter-jurisdictional commerce to avoid the

extra transaction costs of other legal systems.32

Bowers also points out that, in the case of the US, the constitution plays a role in mini- 10

mizing the costs of inter-state trade, because the US Supreme Court in City of Philadelphia

et al. v. New Jersey33 held that states may not discriminate against inter-state commerce.34

The situation is similar in the EU, where the continuing existence of the particularly pri-

vate law systems of the Member States may not create an impediment to the free trade of

goods.35 This has led some scholars to argue that this principle entails that credit securi-

ties established to the laws of one Member State must be recognized in all Member States

as well.36 This in turn leads to an increased necessity of coordination between the legal

systems of the different Member States.

29 Bowers, supra n. 28, at 70.30 Ibid. at 70–71.31 Ibid. at 71.32 With further references ibid. at 72.33 437 U.S. 617, 98 S.Ct. 2531 (1978) (cited to 98 S.Ct. 2531).34 Bowers, supra n. 28, at 71.35 See Heinz-Peter Mansel, Anerkennung als Grundprinzip des Europäischen Rechtsraums: Zur Heraus-

bildung eines europäischen Anerkennungs-Kollisionsrechts: Anerkennung statt Verweisung als neuesStrukturprinzip des Europäischen internationalen Privatrechts? (2006) 70 RabelsZ 651–731 at 731 withfurther references.

36 See ibid. at 731 with further references.

8

§ 2: Bijuralism

Breton and Salmon note that if one accepts the premise that legislation should aim to 11

minimize transaction costs, the complete harmonization of all law seems to be the most

efficient solution. However, in their view, efficient bijuralism is another possibility. It min-

imizes the costs of maintaining distinct legal systems as far as possible without abolishing

them.37 Insofar as one accepts other goals in legislation, such as the maintenance of a dis-

tinct legal culture and nation- and federation-building, which Breton and Trebilcock do,38

and consequently sees bijuralism as a way of pursuing these goals, it is efficient bijuralism

that allows one to pursue these goals. This is even more economical if one considers these

other goals not only to be worthwhile goals, but assumes that, if they were to be pursued in

another manner, would create costs as well.39

V. Conclusion

In conclusion, Canadian bijuralism describes the fact that Canada retained its two major 12

constituent legal systems. This is beneficial, because the retention of Québec Civil Law

in a unified Canada is a way of keeping Québec within Canada. This goal may outweigh

certain economical and transactional disadvantages that result from the differences between

the legal systems. The interaction between the two legal systems should nevertheless be

constructed to be as efficient as possible. Therefore, the impact of differences between

the legal systems has to be minimized if the disadvantages resulting from those differences

outweigh the advantages of retaining a particular distinction. These minimization should

take place at all three levels of bijuralism I identified.40

37 Albert Breton/Pierre Salmon, Bijural Services as Factors of Production in: “Bijuralism: An EconomicApproach” ed. by Albert Breton/Michael Trebilcock (Aldershot: Ashgate, 2006) at 17.

38 See para. 8 on p. 6.39 C.f. Breton/Salmon, supra n. 37, at 49.40 See para. 2 on p. 1.

9

§ 3: Estate and Patrimony

After having established the framework of the analysis, I now turn to the substantive law. 13

There are two reasons why the analysis begins with a brief look at the fundamental principle

of property law in both legal systems. First, secured transactions are a modification of the

property interest debtor and creditor have in the collateral. Second, it is the debtor’s estate

or her patrimony which the the trustee in bankruptcy administers.

I. The Estate in Common Law

In Common Law, a simple description of the estate is to see it as a bundle of rights and 14

interests in a thing.41 Since, historically, there was no ownership of land besides the own-

ership by the crown,42 Common Law did not require the possibility of ownership of the

property for the inclusion of the property within the estate. If the Common Law concept

of “estate” would have taken ownership as its starting point, it would have excluded a large

part of what is property, especially real property that could historically only be owned by

the crown. Common Law therefore always allowed for a variety of different legal and eq-

uitable rights and interests to be part of the estate.43 This distinguishes the Common Law

estate from the Civil Law patrimony.44 Like the term “estate”, the term “property”, from

41 John Henry Merryman, Ownership and Estate (Variations on a Theme by Lawson) (1974) 48 Tul. L.Rev. 916–945 at 927.

42 Ibid.43 Ibid. at 928.44 See para. 15 on next page.

10

§ 3: Estate and Patrimony

which the estate is formed, has a flexible meaning that needs to be constructed depending

on context.45

II. Patrimony in Civil Law

The Civil Law patrimony is all property that is appropriated by the holder of the patri- 15

mony. Property itself is everything that can possibly be appropriated, that means anything

in which the holder of the property can acquire an absolute right of ownership.46 The def-

inition of patrimony is identical in Québec Civil Law and French law.47 Personality rights

are a unchangeable function of the personality and thus cannot be appropriated; they are

consequently not property.48

45 C.f. London Guarantee & Accident Co. v. George (1906), 3 W.L.R. 236 (K.B. Man.) at 238; Bijural-ism and Drafting Support Services Group, Legislative Service Branch, Department of Justice Canada,Proposals for Harmonizing the Bankruptcy and Insolvency Act with Quebec Civil Law = Présentationsdes propositions d’harmonisation de la Loi sur la faillite et l’insolvabilité avec le droit civil Québécois(2003) 37 R.J.T. 19–55 = 19–57 at 40.

46 Bijuralism and Drafting Support Services Group, supra n. 45, at 38; Pierre-Claude Lafond, “Précis dedroit des biens” 2nd ed. (Montréal: Éditions Thémis, 2007) at 3–5; Denys-Claude Lamontagne, “Bienset propriété” 6th ed. (Cowansville, Québec: Éditions Y. Blais, 2009) at 7–9.

47 Jean Carbonnier, “Droit civil” Quadrige. Manuels (Paris: Presses universitaires de France, 1964) at 45.48 Bijuralism and Drafting Support Services Group, supra n. 45, at 38–39; Lafond, supra n. 46, at 160;

Lamontagne, supra n. 46, at 178.

11

§ 4: Secured Transactions in Anglo-Canadian Law on Personal

Property

I. Historical Credit Securities in Common Law Systems

Secured transactions in personal property in all Common Law jurisdictions are governed 16

by Personal Property Security Acts (PPSAs). To better understand the innovations of the

PPSAs, I give a short overview of the historical origins of credit securities in the Common

Law.49

Historically, the first recognized credit security was the pledge or pawn, whereby the 17

debtor transferred possession to the creditor with the understanding that the latter may sell

the property if the debtor defaults on her obligation.

Originally, there was a presumption of fraud if the debtor granted the creditor a security 18

without a transfer of possession.50 However, the absence of non-possessory credit securities

turned out to be an impediment for commerce. Therefore, once the law developed and and

no longer associated fraud with such a transaction, non-possessory securities developed.

The first non-possessory security was the chattel mortgage, which consisted in the trans- 19

fer of title to the collateral from debtor to creditor. Possession remained with the debtor.

Furthermore, the debtor had a right to receive title back once she fulfilled her obligation.

49 See for anouther such overview Ronald C. C. Cuming/Roderick J. Wood/Catherine Walsh, “PersonalProperty Security Law” (Toronto: Irwin Law, 2005) at 2–3.

50 Twyne’s Case (1601), 3 Co. Rep. 80, 76 E.R. 809 (Star Chamber) (cited to 76 E.R. 809); see also WilliamC. Hillman, What’s in a Name: The U.C.C. Filing System in the Courts (1991) 44 Okla. L. Rev. 151–160at 151.

12

§ 4: Secured Transactions in Anglo-Canadian Law on Personal Property

This right was recognized in equity. If the debtor defaulted, the creditor could either apply

to the court for a foreclosure order to extinguish the debtor’s equity of redemption and take

the collateral in satisfaction of the obligation, or she could sell the collateral and apply the

proceeds to the debt.

The second non-possessory security was the equitable charge. It did not involve transfer 20

of title, but rather consisted in a hypothecation of the property. That means that title (and

possession) remained with the debtor, but the creditor was granted the hypothetical right to

realize on the collateral in case of the debtor’s default.

Finally, the floating charge came into use. It consisted in a charge taken on all property 21

of an undertaking. Unlike a fixed charge, the floating charge does not attach to any specific

collateral unless it crystallizes. This characteristic was explicitly recognized for the first

time in Re Panama, New Zealand and Australian Royal Mint Company51. The charge is a

floating, rather than a fixed, charge:

(1.) if it is a charge on a class of assets of a company present and future; (2.) if thatclass is one which, in the ordinary course of the business of the company, would bechanging from time to time; and (3.) if you find that by the charge it is contemplatedthat, until some future step is taken by or on behalf of those interested in the charge, thecompany may carry on its business in the ordinary way as far as concerns the particularclass of assets I am dealing with.52

The floating charge thus allows the debtor to dispose of the collateral in the ordinary course

of business free of the credit security. The creditor, on the other hand, potentially holds the

entire property of the debtor as collateral. The floating charge is therefore beneficial for

both parties.

Apart from these security devices, “quasi-security”53 transactions existed which were 22

51 (1870), 5 Ch. App. 318.52 Re Yorkshire Woolcombers Association [1903] 2 Ch. 284 (C.A. Civ.) at 295, per Romer L.J.

13


based on the allocation of title. These were the conditional sales agreement, the hire-

purchase and the finance lease. In all these cases, the creditor reserved title to the collateral.

The difference between the hire-purchase and the finance lease is that the latter does not

necessarily include the sale of the property, but the debtor may buy the property at the

end of the lease period based on its residual value. In case of a hire-purchase, the debtor

may not be obliged to buy the property, but she is encouraged to realize upon the buy-

ing option by a penalty she has to pay if she chooses not to buy.54 Provincial Conditional

Sales Acts governed conditional sales and hire-purchases, but not finance leases, nor sim-

ple leases without a sales component.55 Accounts receivable were assignable in a security

assignment.56 In case of a security assignment to several creditors, priority was determined

according to which creditor was the first one to notify the account-debtor.57

II. The Concept of a Security Interest in the PPSA

A. Concept

The PPSAs (e.g. in Ontario the Personal Property Security Act58) introduced the unitary 23

concept of a “security interest”. This concept entails both common law security devices

(mortgage, pledge, charge) as well as quasi-security devices based on the allocation of title

and applies the same rule to them, regardless of their formal appearance. However, the

53 As they are referred to in the modern English context, see Law Commission, “Company Security Inter-ests: A Consultative Report” (London: Her Majesty’s Stationery Office, 2004) at xvii.

54 Jacob S. Ziegel, Should Canada Adopt An Article 2A Type Law on Personal Property Leasing? (1989–1990) 16 C.B.L.J. 369–418 at 370–371.

55 Anthony J. Duggan/Jacob S. Ziegel, “Secured Transactions in Personal Property: Cases, Text and Ma-terials” 5th ed. (Toronto: Emond Montgomery Publications, 2009) at 7–9; see historically re theConditional Sales Acts G. V. V. Nicholls, The Law Governing Conditional Sales in Canada (1939)21 J.Comp.Leg. 1–10.

56 Duggan/Ziegel, “Secured Transactions in Personal Property: Cases, Text and Materials”, supra n. 55,at 9-10.

57 See Dearle v Hall (1823) 3 Russ. 1, 38 E.R. 475 (H.C. Ch.) (cited to 38 E.R. 475).58 Personal Property Security Act (Ontario), R.S.O. 1990, c. P.10 (henceforth cited as OPPSA).

14


PPSAs do not touch the underlying legal concepts used to establish the security interest

but instead govern the exercise of the rights used for a security purpose deriving from the

security interests. Thus, allocation of title may for instance still be of interest for tax pur-

poses, but the rights and obligations of creditor and debtor as far as the security purpose

is concerned do not change based on allocation of title, and the PPSAs are based on the

rejection of deriving any consequences from property law concepts.59 Furthermore, the PP-

SAs apply to certain transactions regardless of whether they are used for a security purpose

or not. These are called “deemed security interests”. They are transfers of accounts and

chattel paper (sec. 2 (b) OPPSA60) and all long-term leases for a period of over a year

(sec. 2 (c) OPPSA), as well as consignments that secure a debt (sec. 2 (a) (ii) OPPSA).61 If

deemed security interests do not secure a debt, the part in the PPSA on rights and remedies

is inapplicable (sec. 57.1 OPPSA62).

B. Criticism

The PPSA concept of a unitary security interest has not been left uncriticized. Bridge et al. 24

raise three points against the apparent break of the PPSAs with property concepts. First,

PPSAs include transactions, such as long-term leases, assignment of accounts or chattel

paper, that are not meant to secure credit within their scope because certain elements of

these transaction approach credit securities. This may be contrary to the expectations of

the parties when they contract, who thus do not expect to have secured transaction law

59 Michael G. Bridge et al., Formalism, Functionalism, and Understanding the Law of Secured Transac-tions (1999) 44 McGill L.J. 567–664 at 573.

60 Personal Property Security Act (Ontario), R.S.O. 1990, c. P.10, version as amended by S.O. 2006, c. 34,Sched. E, s. 2.

61 See for an overview Duggan/Ziegel, “Secured Transactions in Personal Property: Cases, Text and Mate-rials”, supra n. 55, at 55–60.

62 Personal Property Security Act (Ontario), R.S.O. 1990, c. P.10, version as introduced by S.O. 2006, c.34, Sched. E, s. 19.

15


to apply.63 Second, there is a logical breach within the PPSAs when they include certain

ownership interests within their scope. The fact that the PPSAs had to resort to the technique

of a legal fiction to include certain ownership interests within its scope shows that even

under the PPSAs, ownership and security interest are different concepts.64 Bridge et al.

critique this technique because the PPSAs purport to promote function over form. However,

if interests that serve a clearly proprietary purpose (such as certain long-term leases) are

included in the scope of the PPSAs for formal reasons, this puts form over function again.65

Against this criticism, it can be argued that the PPSAs may use a formal criterion such as

the length of the lease to include a transaction within its scope. However, this formalism is

not an end in itself. Rather, it lowers transaction costs by establishing a clear criterion that

is foreseeable for the parties. The fact being criticized in the second point of criticism is

thus nothing but an answer to the first point of criticism. The third point of criticism is that

the PPSAs rely on the very concept of property because a security interest is an interest in

property. Thus, property itself still needs to be defined.66 However, this point is addressed

in the PPSAs themselves (see for instance sec. 72 OPPSA), which provide that common law

and equity continue to apply for questions not governed by the PPSAs. Thus, the PPSAs

still make reference to the common law to provide for a definition of property. The gap

within the PSSAs is intentional.

III. Rights Deriving from a Security Interest

As a consequence of the unitary concept of a security interest, the PPSAs provide for a 25

unitary set of rights resulting from the security. The creditor may take the collateral in

63 Bridge et al., supra n. 59, at 575.64 Ibid.65 Ibid.66 Ibid. at 575–576.

16


satisfaction of the obligation (sec. 65 (2) OPPSA67), but only insofar as debtor and other

interested third parties do not object. If they object, the creditor may apply to the court

to render the objection ineffective (sec. 65 (5) OPPSA). If the creditor does not take the

collateral, she must sell and account for the collateral according to sec. 63 OPPSA68. The

statute thus deems the sale of the collateral as the default way of realizing the credit security.

Cuming/Wood/Walsh see this statutory choice as an outflow of the primary hypothecary

nature of the PPSA security interest.69 They seem to refer to the difference between the old

Common Law chattel mortgage, which was initially based on transfer of ownership to the

creditor and thus where t foreclosure would have been the default realization option, and the

PPSA security interest, where the default option is a power to dispose of somebody else’s

property.

IV. Title Allocation

One of the problems the PPSAs face is the proper conceptualization of the conditional- 26

sales agreement. The PPSAs do not answer the question to what the security interest of

the vendor attaches. If title never passes to the debtor, the security interest cannot attach

to the property sold and now owned by the debtor. There must be some other form of

property to which the security interest may attach. It cannot attach to any form of equity

of redemption vested in the debtor because if she has not made any payment whatsoever

towards the property, she has not received such equity. However, the PPSAs allow for the

security interest to attach before the assumed creation of such equity.70 Sec. 23 OPPSA, the

67 Personal Property Security Act (Ontario), R.S.O. 1990, c. P.10, version as amended by S.O. 2000, c. 26,Sched. B, s. 16 and S.O. 2006, c. 34, Sched. E, s. 21.

68 Personal Property Security Act (Ontario), R.S.O. 1990, c. P.10, version as amended by S.O. 2000, c. 26,Sched. B, s. 16 (9).

69 Cuming/Wood/Walsh, supra n. 49, at 5.70 See ibid. at 64–67.

17


general rule on perfection through registration, does not mention that payment of the first

rate, and thus the existence of an equity, as a condition for perfection. And if perfection is

possible, the security interest must have attached already because attachment is a condition

of perfection according to sec. 20 (1) OPPSA71. One way to avoid the problem is by ac-

cepting that the treatment of a legal event by the PPSAs is somewhat inconsistent with the

characterization of the same event outside the law of secured transaction.72 Alternatively,

Ziegel and Denomme suggest that the PPSAs transfer beneficial ownership of the collateral

to the debtor:73

It is intrinsic to the creation of security under the Canadian legislation that the benefi-cial title in property subject to a security interest is, or remains, in the debtor and thatonce the secured obligation has been discharged the debtor becomes the unencumberedowner of the collateral.74

The use of the phrase “beneficial title” implies that the PPSAs convey a kind of equitable

title to the property to the owner even in case of a conditional-sale agreement. This, how-

ever, would go against the equitable principle that there is no property alienation without

consent.75 Another, less dogmatic analysis is to say that the PPSAs treat any substantial

security agreement as a security agreement, and therefore, for the purpose of the PPSA,

a conditional-sale agreement is a security agreement, not a retention of title by the seller.

Therefore, under a PPSA analysis, the debtor-buyer acquires title. However, under this

analysis, the PPSA go even further in that they not only transfer an equitable title, but full

title without consent.

71 Personal Property Security Act (Ontario), R.S.O. 1990, c. P.10, version as amended by S.O. 2006, c. 8,s. 132.

72 See Cuming/Wood/Walsh, supra n. 49, at 66–67.73 See para. 111 on p. 61.74 Jacob S Ziegel/David L. Denomme, “The Ontario Personal Property Security Act: Commentary and

Analysis” (Aurora, Ont.: Canada Law Book, 1994) at 63.75 Bridge et al., supra n. 59, at 589–590.

18

§ 5: Secured Transactions in Québec Law on Movable and

Incorporeal Property

In this chapter, I look at the regime of credit securities in Québec. Giving an overview 27

of how credit securities function in Québec allows me to highlight the interaction between

Québec law and the federal insolvency law and how it differs from the same interaction

with Anglo-Canadian law.

I. Nature of Credit Securities

A. Classification of Credit Securities

In Québec Civil Law, credit securities can be classified using the means through which 28

security is given. Thus, they can be either personal or real credit securities. Real credit

securities attach to property (“biens”). Personal credit securities on the other hand attach

to the patrimony of the person giving the personal security.76 Real credit securities are the

subject of this paper.

B. Accessory Nature

A credit security is by definition a device that secures payment of an obligation; it can thus 29

76 Marc Boudreault, “Les sûretés” 2nd ed. (Montréal: Wilson & Lafleur, 2008) at para. 3–4.

19

§ 5: Secured Transactions in Québec Law on Movable and Incorporeal Property

not exist without a causal obligation whose execution it guarantees.77 This is referred to as

the “accessory nature” of a credit security.

C. Common Pledge of Creditors

A credit security is understood to be a device by which the creditor may avoid the paripassu 30

rule of distribution of the proceeds of a judicial sale in execution78 The object of a regular

personal action, an action to extinguish a personal obligation, is the entire patrimony of

the debtor. The patrimony is the sum of the the debtor’s assets (objects of ownership) and

liabilities that can be assigned a pecuniary value.79 This patrimony of the debtor is referred

to as the “common pledge” of the creditors (art. 2644 C.c.Q.).80 Any real right, whether it

be the ownership, a fractional dismemberment of ownership (personal servitudes), charges

on land (real servitudes) or collateral rights securing an obligation (real security), on the

other hand is enforced by an action in the thing itself.81 Thus, a credit security enables the

creditor to take the property out of the common pledge and use it solely to satisfy her own

claim.

Bridge et al. write that “much more than the [C]ommon [L]aw, the [C]ivil [L]aw dis- 31

tinguishes between owing and owning”.82 There they refer to the fact that as long as any

property is still subject to the communal pledge, a creditor cannot yet have any property

interest in the property as there is not yet any possibility of ownership of the property.83 An

additional consequence of the common pledge is that in principle, any preferential treat-

77 Boudreault, supra n. 76, at para. 1.78 Bridge et al., supra n. 59, at 651.79 Ibid.80 See ibid.81 Ibid.82 Ibid.83 See para. 15 on p. 11.

20


ment can only arise from the securities stipulated by the C.c.Q. These are prior claims and

hypothecs.84 However, this does not rule out per se any form of security working with ti-

tle modification.85 Their consequence however is to take the property out of the debtor’s

patrimony entirely and thus remove them from the common pledge.

D. No Presumption of Hypothec

While the common pledge of all creditors and the regime of the C.c.Q. in itself do not 32

rule out any additional forms of credit securities,86 the Loi sur l’application de la réforme

du Code civil87 prohibits certain types of quasi-security devices based on title allocation

(namely the security transfer of title).88 However, the C.c.Q. does not prohibit the use of

other types of concepts that can have the effect of being a credit security, such as the instal-

ment sale (see art. 1745 C.c.Q.).

The fact that the C.c.Q. partly maintains a distinction between the hypothec and title- 33

allocation based on their formal differences is criticized in doctrine.89 Bridge et al. identify

84 “En effet, l’article 1801 C.c.Q. rend nulle toute stipulation suivant laquelle, pour garantir l’exécution del’obligation, le créancier se réserve le droit de devenir propriétaire irrévocable du bien ou d’en disposer.Le Code réaffirme le principe que les biens, tous les biens du débiteur, sauf stipulation particulière (art.2645 C.c.Q.), sont le gage de ses créanciers (art. 2644 C.c.Q.). Si tous les créanciers ont, règle générale,des droits égaux sur les actifs de leur débiteur, le Code prévoit que la distribution du prix de leur ventepuisse avantager ceux qui bénéficient «des causes légitimes de préférence» (art. 2646 C.c.Q.). Or, stipulel’article 2647 C.c.Q. : «les causes légitimes de préférence sont les priorités et les hypothèques». Lespremières sont établies par la loi alors que les secondes sont conventionnelles ou légales, mobilièresavec ou sans dépossession ou immobilières. Les sûretés sont habituellement sujettes à l’obligation depublicité.” Boisclair (Syndic de) c. Banque de Montréal [2001] R.J.Q. 2815 (C.A.) at para. 17, perGendreau J.A.

85 “On aurait pu, sans doute, arguer que la cession de créance à titre de garantie collatérale pourrait trou-ver sa place dans ce système, n’eut été la Loi sur l’application de la réforme du Code civil qui scellel’intention du législateur.” ibid. at para. 18, per Gendreau J.A.

86 See para. 31 on the preceding page.87 Loi sur l’application de la réforme du Code civil, L.Q. 1992, c. 57 (henceforth cited as L.A.R.C.C.).88 See Boisclair (Syndic de) c. Banque de Montréal, supra n. 84, at para. 18.89 See Macdonald, Change of Terminology? Change of Law?, supra n. 24, Louis Payette, “Les sûretés

réelles dans le Code civil du Québec” 4th ed. Droit civil en ligne (Cowansville, Québec: Éditions Y.Blais, 2010) at para. 155–157.

21


four approaches with which a law-maker can react to the fact that title-allocation may create

additional securities:

A first means for controlling title security would be its outright prohibition. No right inproperty securing performance of an obligation other than a hypothec could be taken.A second approach would be the enactment of a general deeming provision that wouldnot prohibit title transactions, but would simply recharacterize them as hypothecs. Anexample is the “presumption of hypothec” suggested by the Civil Code Revision Of-fice. Instalment sales and financial leases, for example, would automatically becomeordinary sales with a hypothec back in favour of the seller, regardless of the intention ofthe parties to them. Third, the legislature could adopt a “substance of the transaction”principle. The transaction would remain as the parties intended, but the registrationand enforcement regime would be the same as that applicable to ordinary hypothecs.In fact, this was the approach taken by the legislature in 1964. Fourth, the legisla-ture could simply leave all forms of title transaction unregulated as security devices.Each of these four approaches purportedly regulate all transactions on the basis of theirintent, their object, or their consequence.90

Bridge et al. then pose the main question one has to ask when choosing between the four

alternatives.91 They state that “[t]he question is whether non-security concepts are seen as

parasitic upon the concept of security, or whether the concept of security is parasitic upon

the other basic concepts of private law, notably those relating to property and obligation.”92

Macdonald argued for the second approach,93 which in his view would have been more 34

coherent with the Civil Law.94 Common Law lawyers as well have argued that the single

unified security-interest found in Uniform Commercial Code, Article 9, Secured Transac-

tions95 and the PPSAs is based on the Civilian concept of the hypothec and thus harmonizes

90 Bridge et al., supra n. 59, at 657, emphasis added.91 See para. 33 on the previous page.92 Bridge et al., supra n. 59, at 657–658.93 See fundamentally Roderick Alexander Macdonald, Faut-il s’assurer qu’on appelle un chat un chat?:

Observations sur la méthodologie législative à travers l’énumération limitative des sûretés, «la pré-somption d’hypothèque» et le principe de «l’essence de l’opération» in: “Mélanges Germain Brière”ed. by Ernest Caparros Collection Bleue (Montréal: Wilson & Lafleur, 1993) 527–594.

94 Macdonald, Change of Terminology? Change of Law?, supra n. 24, at 367.95 Uniform Commercial Code, Article 9, Secured Transactions (USA) (henceforth cited as Art. 9 UCC).

22


very well with a Civil Law legal system.96 Under this rule, any transaction that is substan-

tially comparable to a hypothec would have been subject to the same requirements. This

was also the approach suggested by the Office de révision du Code Civil.97 It was rejected

by the legislator in favour of a variant of the third approach whereby certain effects would

be subject to rules similar to the ones for the hypothec.98

In favour of his approach, Macdonald argues that the C.c.Q. already partly restricts the 35

effects of title allocation by requiring registration of title in certain cases,99 and a broader

generalization of the rule would thus not introduce an incompatibility with the C.c.Q.100

Macdonald proposes that jurisprudence should adopt a substance-of-the-transaction rule

even though such rule is absent in the C.c.Q. because it creates coherence between the

abstract policy goals,101 and the specific rules of the C.c.Q.102

The courts however did not adopt Macdonald’s suggestion.103 Furthermore, the 36

Supreme Court has sharply distinguished between title retention and a security interest; the

96 See Harry R. Sachse, Report to the Louisiana Law Institute on Article Nine of the Uniform CommercialCode (1967) 41 Tul. L. Rev. 505–554, 785–850 at 535.

97 Paul-André Crépeau (ed.), “Rapport sur le code civil du Québec” vol. II (Québec: Éditeur officiel,1978) at t. 1, 431.

98 Gil Rémillard, Présentation du projet de Code civil du Québec (1991) 22 R.G.D. 5 at 55.99 See para. 113 on p. 62.100 Macdonald, Change of Terminology? Change of Law?, supra n. 24, at 368–369.101 See para. 70 on p. 38.102 Ibid. at 372.103 “The coming into force of the [C.c.Q.] marked an important step in the evolution of the Quebec law of

real security [. . . ]. The legislature reorganized this field of civil law, structuring it primarily around asingle type of security, the hypothec, which applies to both movable and immovable property, althoughit also recognized, in [art. 2647 C.c.Q.], another type of right, the prior claim, which protects certainkinds of claims. [. . . ] This solution was adopted in preference to the presumption of hypothec recom-mended by the Civil Code Revision Office, which would have grouped all forms of security, including‘ownership securities’ (sûretés-propriétés), under a single concept: the hypothec [. . . ]. That proposal hadattracted strong objections from many critics. [. . . ] Thus, instead of agreeing to organize the law of realsecurity around the concept of presumption of hypothec, the Quebec legislature set up a simplified, uni-fied security system that nevertheless maintained the fundamental distinction between the legal conceptsof security and ownership in relation to the creation and exercise of real securities.” (citations omitted)Lefebvre (Syndic de); Tremblay (Syndic de) 2004 SSC 63, [2004] 3 S.C.R. 326, 244 D.L.R. (4th) 513, 7C.B.R. (5th) 243 (cited to [2004] 3 S.C.R. 326) at para. 20, per LeBel J.

23


former is based on ownership by the creditor, the latter on hypothecation which is depen-

dent on ownership by the debtor.104 With language that stresses the fundamental difference

between the two concepts, the Supreme Court has implicitly refused to introduce a presump-

tion of hypothec. However, this judicial approach has been criticized again by Grenon. In

Grenon’s view, the difference between title retention and hypothec in Québec Civil Law

conflicts with insolvency law policy, and bringing the law regarding quasi-security devices

using title-retentionx closer in line with the law on hypothecs would have been a way to

resolve this conflict.105

Arguments against the adoption of the presumption of hypothec can be found in the 37

doctrine as well. The presumption of hypothec in its strictest form would change the con-

tractual title arrangement and thus contradict contractual freedom.106 Furthermore, it may

create uncertainty about where ownership is located.107 To understand this argument, it

should be recalled that ownership in Civil Law is absolute, and there is no equitable own-

ership.108 Thus, an analysis such as the one in Giffen (in re)109 stating that the possessory

interest of the debtor can be part of his estate could not be transferred to the Civil Law

patrimony.110 Lastly, the C.c.Q. created a unitary credit security for movable and immov-

able property: the hypothec. Especially the law governing immovables requires a clear

allocation of title with which the presumption of hypothec would conflict.111

104 Lefebvre (Syndic de); Tremblay (Syndic de), supra n. 103, at para. 21; Ouellet (Syndic de) 2004 SCC 64,[2004] 3 S.C.R. 348, 244 D.L.R. (4th) 532, 7 C.B.R. (5th) 277 (cited to [2004] 3 S.C.R. 348) at para. 9,13.

105 See Aline Grenon, La problématique entourant les « sûretés-proprietés » au Québec: Lefebvre (Syndicde); Tremblay (Syndic de) et Oulllet (Syndic de) (2005) 35 R.G.D. 285 passim, see also para. 113 onp. 62.

106 Payette, supra n. 89, at para. 159.107 Ibid.108 See para. 15 on p. 11.109 Giffen (in re) [1998] 1 S.C.R. 91, 155 D.L.R. (4th) 332, 1 C.B.R. (4th) 115 (cited to [1998] 1 S.C.R. 91)

see also para. 103 on p. 56 sqq.110 Ibid. at para. 34.111 Payette, supra n. 89, at para. 160.

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E. Classification of Real Credit Securities

There are several legal mechanisms in Québec civil law that can serve to secure a debt. The 38

first kind is a credit security that gives a right of preferential satisfaction, and in certain

cases following, on property. These sub-group contains the hypothec and prior claims, as

well as certain credit securities deriving from federal law.112 The second group of debt-

securing mechanisms work through the allocation of title. They are the retention of title

and fiduciary ownership for security purposes (security trust), a sale under a resolutory

clause, the instalment sale, the sale with the option of re-buying the property as well as

leasing. However, the primary purpose of the mechanisms in the second group is not to

secure credit.113 Therefore, the main focus of this paper will lie on credit securities from

the first group, namely prior claims and hypothecs.

If classified by how the real credit securities come into existence, one can distinguish 39

contractual securities and legal securities. The former includes the hypothec and credit

securities under the Bank Act114. The latter includes priorities, legal hypothecs and, at least

one author argues, the title retention.115

After having classified the credit securities, I will now give an overview of the two main 40

credit securities of the first group, the hypothec and the prior claim.

II. Prior Claims

A. Nature of Prior Claims

Prior claims are legal securities. They can be defined as a right of preferential satisfaction 41

112 Boudreault, supra n. 76, at para. 4.113 See Ouellet (Syndic de), supra n. 104, at para. 9, 13.114 Bank Act, S.C. 1991, c. 46 (henceforth cited as Bank Act).115 Boudreault, supra n. 76, at para. 7.

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from the proceeds of sale of a good, accorded by law to a creditor by virtue of the creditor

having a claim deriving from a certain, named kind of obligation.116 The obligations which

make a creditor a creditor with a prior claim are listed in art. 2651 C.c.Q.117 I look at the

several categories listed there and their respective particularities in the next subsection.118

Prior claims enjoy priority even over hypothecs.119 According to art. 2655 C.c.Q. prior

claims take priority even though they are not published. If several priorities attach to the

same property, their rank is determined by law, and if several hold the same rank, they share

the proceeds concurrently (art. 2651 C.c.Q. 2657 C.c.Q.).

Prior claims differ from hypothecs in two aspects. First, they do not give the creditor a 42

real right to action, meaning she cannot enforce her right directly into the particular prop-

erty, but rather must follow the ordinary execution procedures against the debtor. Second,

they do not contain a right to follow the property, meaning that the prior claim only attaches

to the property as long as it is the debtor’s property.120 That means that the creditor cannot

take possession of the property, take it in lieu of payment, and she can only force the sale

of the property if she pursues a personal action against the debtor.121 For these reasons, the

creditor with a prior claim is not considered to be a secured creditor for the purpose of the

BIA.122

Because prior claims derive from law, the parties are not at liberty to modify, nor create 43

116 Payette, supra n. 89, at para. 190, 310.117 Code civil du Québec, S.Q. 1991, c. 64, version as amended by S.Q. 1999, c. 90, s. 41.118 See para. 44 on next page sqq.119 Payette, supra n. 89, at para. 190.120 Boudreault, supra n. 76, at para. 29; Payette, supra n. 89, at para. 203.121 Payette, supra n. 89, at para. 203.122 Ibid. at para. 193; see also para. 117 on p. 66 sq.

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prior claims through a contractual agreement.123 Unlike a hypothecary creditor, a creditor

of a prior claim cannot cede his rank.124

B. Certain Particular Prior Claims

1. Prior Claim of a Supplier

Under art. 1998 Code civil du Bas-Canada125, 1999 C.civ.B.-C. the vendor of merchandise 44

had a privilege, a right of re-vindication to the sold merchandise, and a right to resolve the

contract. According to art. 2651 C.c.Q. on the other hand, the vendor has a regular prior

claim with no attached real right. She still maintains her right to resolve the contract. This

right however creates one possible conflict with federal law. According to art. 1741 C.c.Q.

the right to resolve requires that the property has not been surrendered to a hypothecary

creditor. It is unclear whether the term “hypothecary” is used here because the hypothec

is the only hypothecary credit security under the C.c.Q. or because it should specifically

exclude federal credit securities such as the one under sec. 427 Bank Act. Under the old law,

the supplier could take the property back regardless of a security under the Bank Act.126

Payette argues this case law should still be authority because the security under sec. 427

Bank Act is a property right,127 and not a hypothecary right.128

123 C.f. Kouri c. Ferguson and Canada Maple Exchange Ltd. (1922), 33 B.R. 208; Boudreault, supra n. 76,at para. 28.

124 Municipalité de Baie-Trinité c. Caisse populaire Desjardins de Baie-Comeau J.E. 2003-1248, [2003]R.D.I. 460 (C.A.); Boudreault, supra n. 76, at para. 28, n. 58.

125 Code civil du Bas-Canada (Lower Canada), 29 Victoria, c. 41 (henceforth cited as C.civ.B.-C.).126 Banque nationale du Canada c. William Neilson Ltd. [1991] R.J.Q. 712, 9 C.B.R. (3d) 86 (Sup. Ct.).127 See para. 53 on p. 31.128 Payette, supra n. 89, at para. 244.

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2. Right of Retention

Art. 2651 (3) C.c.Q. accords a prior claim to all creditors who have a right of retention. 45

Art. 2741 C.c.Q. in turn stipulates that the debtor may not demand restitution of property

owned by her but held by a hypothecary creditor (in a “pledge”129) until she has performed

the secured debt. If one were to qualify the resulting right of the creditor as a right of

retention within the meaning of art. 2651 (3) C.c.Q. the creditor of a pledge would always

also enjoy priority over all other secured creditors by virtue of her prior claim. This would

undermine the priority scheme set out by the registration and perfection scheme of the

C.c.Q. Therefore, doctrine states that the right deriving from the pledge is not a right of

retention in the sense of art. 2651 (3) C.c.Q.130 This result can also be explained by an

insolvency argument. If the creditor of a pledge would enjoy a prior claim as well, other

secured creditors would have an incentive to put the debtor in insolvency for the following

reason. The pledgee would, by virtue of her prior claim, enjoy priority over other secured

creditors.131 Insolvency would extinguish the prior claim.132 Thus, any secured creditor

who had priority over the pledgee were it not for the prior claim would benefit from putting

the debtor into insolvency.

As regards certain federal laws,133 that give a creditor a right to retain property, the 46

Supreme Court has held that all further rights deriving from such a right of retention are

already comprehensively determined by federal law.134 Therefore, a right of retention that

derives from federal law cannot be the basis for a prior claim.

129 See para. 57 on p. 33.130 Boudreault, supra n. 76, at para. 534; Payette, supra n. 89, at para. 860–862.131 See para. 41 on p. 25.132 See para. 117 on p. 66 sqq.133 See Payette, supra n. 89, at para. 276.134 Canada 3000 Inc., Re; Inter-Canadian (1991) Inc. (Trustee of) 2006 SCC 24, [2006] 1 S.C.R. 865, 269

D.L.R. (4th) 79, 20 C.B.R. (5th) 1 (cited to S.C.R.) at para. 78–82.

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3. Property Taxes on Immovables

The C.c.Q. underwent one significant change regarding prior claims for municipalities. Ini- 47

tially, these prior claims were the same as all other prior claims. While a purchaser of an

immovable would still be held liable for unpaid taxes on the immovable, she would not have

been liable for the original obligation. Rather, after the purchase, a new obligation with a

new prior claim would arise.135

Art. 2654.1 C.c.Q.136 now specifically provides that prior claims of municipalities and 48

school boards for property taxes on immovables constitute a real right and give the creditors

a right to follow the property. Thus, the prior claim remains attached to the property if it

changes hands to a new owner. However the law does not envision any special real right

of action for these creditors. Consequently, no prior claim entails any kind of real right

of action. The reference in art. 2656 C.c.Q. to a real right of action thus is either without

meaning or means just a reference to the execution of the personal judgment.137 The latter is

real only in the sense that it is a realization of the common pledge of the creditors, but if the

term were interpreted that way, all rights against a private law subject would be real rights

because the common pledge is nothing but the mean of realizing a private law right.138

III. Hypothecs

The hypothec is the consensual security device established by the C.c.Q. According to 49

Cuming/Walsh/Wood it is on fundamental level similar to the security interest governed

by the PPSAs in that one underlying concept governs securities on all kinds of movable

135 Payette, supra n. 89, at para. 303.136 Code civil du Québec, S.Q. 1991, c. 64, version as introduced by S.Q. 1999, c. 90, a. 42.137 Payette, supra n. 89, at para. 203–204.138 See para. 30 on p. 20 sq.

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property (and immovable property, albeit this is mostly outside the scope of this paper),

present or after-acquired, and can secure any kind of obligation, past, current or future,

determinate or indeterminate.139

A hypothec is subject to the prior claims enumerated in art. 2651 C.c.Q. Creditors of a 50

prior claim will be preferentially satisfied over creditors of a hypothec and ordinary credi-

tors.140

A. The Hypothec in Roman Law

The modern hypothec in Québec law derives from Roman law. In fact, the C.c.Q. has 51

brought the hypothec closer to its origins because it once again allows the hypothecation

of movables. In Roman law, there were four credit securities for movables. They are the

“fiducia cum creditore” where the creditor takes title and asset. Second, there are those se-

curities where title is with the creditor, but the debtor has possession (“pace commissoire”)

Third, there is the “pignus”, where the creditor takes possession and the debtor retains ti-

tle.141 Finally there is the “hypotheca”, where the creditor has neither title nor possession,

but only a conditional “right to seize and sell the secured asset, either by judicial process or

privately”.142

The hypotheca developed from the Praetorian edicts. The first cases of hypothecs were 52

agreements between the lessor and the lessee of immovables. The lessee would grant the

lessor a security on all movables that the lessee would bring onto the land of the lessor.

139 Cuming/Wood/Walsh, supra n. 49, at 47.140 See Boudreault, supra n. 76, at para. 470.141 Bridge et al., supra n. 59, at 653-654.142 Ibid. at 654.

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Unlike the fiducia cum creditore143 (security trust) and the pignus144 (pledge), the creditor

thus did not take possession of the collateral. The possessory link was substituted by the

fact that the debtor brought the collateral onto the creditor’s land.145 Later, the Praetor no

longer required that the collateral be on the creditor’s land and thus allowed hypothecation

in any other debtor—creditor relationship.146 The hypothec had in rem effect and included

a right to follow the property.147

B. Nature of the Hypothec

1. Hypothec and Patrimony

Both the C.civ.B.-C. and the C.c.Q. define the hypothec as a real right. Occasionally, the 53

hypothec has been characterized as a partial alienation of the right of ownership.148 How-

ever, the Québec Court of Appeal held that the accessory nature of the hypothec contradicts

any characterization of it as a (partial) alienation of the property because the real right the

creditor receives depends on the existence of the underlying obligation whereas ownership

is absolute and unconditional.149 The debtor retains the right to usus, fructus and abusus of

the collateral (art. 2733 C.c.Q.). If the fruits and revenues are collected by the creditor of

143 See Paul van Warmelo, “An Introduction to the Principles of Roman Civil Law” (Cape Town: Juta,1976) at 113–114.

144 See ibid. at 115–116.145 Paul Jörs et al., “Römisches Recht” 4th ed. Enzyklopädie der Rechts- und Staatswissenschaft. Abteilung

Rechtswissenschaft (Berlin: Springer, 1987) at 203–204.146 See Warmelo, supra n. 143, at 116–119.147 Jörs et al., supra n. 145, at 205.148 Loewen c. MacCabees Mutual Life Insurance Co. [1973] C.A. 1094 (Q.) at 1095; Caisse populaire de

Lévis c. Maranda [1950] B.R. 249 at 254.149 “C’est ce caractère accessoire de l’hypothèque qui la distingue d’un véritable démembrement de pro-

priété. Essentiellement elle confère un droit réel accessoire servant à garantir l’exécution d’une obli-gation en donnant au créancier le droit d’être préféré sur le produit de la vente.” Banque CanadienneImpériale de Commerce c. Marcano [1990] R.J.Q. 28, [1990] R.D.I. 6 (C.A.) (cited to [1990] R.J.Q. 28)at 31, per Nichols J.A.

31


a pledge, she must hand over the fruits to the debtor and apply the revenues to expenses,

interest and main debt related to the pledge (art. 2737 C.c.Q.).

Macdonald identifies a shortcoming of the hypothec under the C.c.Q. According to him, 54

a lesser real right such as the hypothec (an accessory real right), can only exist in something

which can be subject to the absolute and foremost real right of ownership.150 He claims that

in classical Civil Law doctrine,151 only corporeals can be subject of ownership.152 It would

thus follow that a right in a thing that cannot be owned cannot be a real right. Thus, it

is contradictory to consider the hypothec a real right if it can attach to all types of things.

However, the Civil Law of Québec, according to Macdonald, requires that something is a

real right in order for it to be recognized as having priority in insolvency.153 The monolithic

concept of one hypothec for all kinds of property thus creates a concept of property and

ownership in one section of the C.c.Q. that is incompatible with the concepts as they are

used in the rest of the C.c.Q.154

2. Real Subrogation

In general, the hypothec does not include an element of real subrogation, that is, if the 55

debtor alienates the property (which she may155), the hypothec remains attached to the

original property, but the creditor does not receive a right to the property the debtor has

received as proceeds of the alienation. In certain cases, a new hypothec in the proceeds

150 Macdonald, Change of Terminology? Change of Law?, supra n. 24, at 370.151 See para. 15 on p. 11.152 Macdonald, Change of Terminology? Change of Law?, supra n. 24, at 370.153 Ibid. at 369, with references in n. 17.154 Ibid. at 370.155 See para. 53 on the previous page.

32


may arise for the benefit of the creditor. This is however not a continuation of the old

right.156

3. Right to Follow

The hypothec gives the creditor the right to follow the property “into whosever [sic!] hands 56

it may be” (art. 2660 C.c.Q.). This means that the hypothec remains attached to the property

even if the ownership passes to a third party.157

C. Kinds of Hypothecs

1. Classification of Hypothecs

Hypothecs can be classified by collateral (hypothec on movables or immovables, on partic- 57

ular property or on all property, hypothecs on obligations, or hypothecs on property repre-

sented by an instrument), whether they occur with (a “pledge”) or without delivery, or by

effect (“hypothèque ordinaire ou ouvert”).

2. Hypothecs on Immovables and Movables

There is no fundamental difference between a hypothec on movables and on immovables. 58

Rather, both are different appearances of the same legal institution, and unless otherwise

provided, the provisions governing a hypothec are applicable on both.

156 See Payette, supra n. 89, at para. 319.157 See ibid. at para. 322–326.

33


3. Hypothec on Obligations

An obligation, such as an account, can be hypothecated as well. Before the C.c.Q. if an 59

obligation was to be used as collateral, the security used was security assignment. The

debtor would assign the account to the creditor. Except by a convention for sale and re-sale

and in a security trust, the security assignment of an obligation is no longer permissible

because it would allow the creditor to circumvent publicity requirements.158

4. Hypothec on All Goods

A hypothec on all goods can only be entered into by a natural person, or, arguably, a corpo- 60

ration undertaking a business.159 A floating hypothec similarly can only be entered into by

these debtors.160

D. Opposability of the Hypothec

1. Publication

A hypothec is opposable against third parties either when it is published or if it is a hypothec 61

with delivery of the collateral upon delivery. The hypothec on movables is registered in the

“Register of personal and movable real rights” (2980 C.c.Q.). The register consists of two

files. One file contains the name and date of birth (for natural persons) respectively postal

code (for moral persons and trusts) of the debtor. The second file contains the description

of the collateral if the collateral has a vehicle identification number (VIN).161

158 Boisclair (Syndic de) c. Banque de Montréal, supra n. 84, at para. 16–17; Boudreault, supra n. 76, atpara. 134.1.

159 See for the discussion of the ability of a corporation Boudreault, supra n. 76, at para. 142.1.160 Ibid. at para. 201.161 Ibid. at para. 232–235.

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2. Delivery

a) Delivery and Real Hypothecs

Delivery substitutes for publication. The hypothec resulting from delivery (art. 2702 62

C.c.Q.162) is referred to as a “real hypothec” because it contains a “real” element,163 the

transfer of possession. The defining condition of a real hypothec is that the creditor gains

control and exclusive authority over the collateral.164 In case of a real hypothec, the posses-

sion of the collateral by the creditor is the condition of opposability of the hypothec against

third parties. Thus, possession of the collateral has a “publicity effect” for it replaces the

register publicity.

b) Delivery of an Obligation

If incorporeal property represented by a negotiable instrument is hypothecated, the delivery 63

takes place by delivery of the instrument. Initially, it was unclear whether it would be possi-

ble to “deliver” obligations not represented by negotiable instruments. The Supreme Court

answered that question in the affirmative in Caisse populaire Desjardins de Val-Brillant v.

Blouin165.

Above,166 I explained that a real hypothec requires effective control of the collateral by 64

the creditor. In case of an obligation not represented by a negotiable instrument, it was ar-

gued that this control could be achieved if the conditions for opposability of the assignment

162 Code civil du Québec, S.Q. 1991, c. 64, version as amended by S.Q. 2008, c. 20, a. 131.163 See para. 81 on p. 44.164 C.f. Grobstein c. A. Hollander and Son Ltd. [1963] B.R. 440 at 442; Payette, supra n. 89, at para. 854-

855.165 2003 SCC 31, [2003] 1 S.C.R. 666, 225 D.L.R. (4th) 577, 43 C.B.R. (4th) 36 (cited to [2003] 1 S.C.R.

666).166 See para. 62.

35


vis-à-vis the debtor are met.167 The conditions of opposability are enumerated in art. 1641

C.c.Q.168. According to this provision, if the conditions are met, the assignment of an ac-

count is opposable against the debtor of the account. Payette argued against the possibility

of pledging of an account through the fulfillment of the conditions of opposability. His argu-

ment goes as follows: The C.civ.B.-C.169 had specified that the creditor gained “possession

utile” sufficient for the pledge if the conditions of the opposability of the assignment were

met. The C.c.Q. lacked such a provision, and therefore, the meeting of these conditions

should no longer constitute “possession utile”.170 This argument seems to implicitly rely

on the literal meaning of “possession” being something in the physical realm. Thus, absent

a statutory provision re-defining the word, “possession” only entails events in the physical

realm, but not abstract legal events, such as notice to the debtor of the assigned or pledged

obligation. The Supreme Court however followed the first view.171

The court justified its decision by reference to the Common Law. It stated: 65

the approach adopted above also has the advantage of being compatible with the mostrecent developments in the North American law of real security. Legislation in relationto personal property security that has been enacted in the common law provinces ofCanada allows individuals to grant security interests in claims that are not representedby negotiable instruments, which are considered to be intangibles.172

The decision of the Supreme Court has been met with criticism from the doctrine, which 66

can be summarized as follows. First, the court gave a too liberal meaning to the word “pos-

167 Boudreault, supra n. 76, at para. 196.168 Code civil du Québec, S.Q. 1991, c. 64, version as amended by S.Q. 1992, c. 57, s. 716.169 Civano Construction Inc. (in re) (1961), [1962] C.S. 45; Fiduciaires de la Cité et du District de Montréal

Ltée. c. Brosseau [1970] C.A. 419 (Q.) at 422.170 Payette, supra n. 89, at para. 828.171 Caisse populaire Desjardins de Val-Brillant v. Blouin, supra n. 165, at para. 14.172 Ibid. at para. 22.

36


session”. Second, by extending the applicability of the pledge to obligations not represented

by negotiable instruments, the court undermined the publicity function of possession.173

The criticism hails back to earlier criticism made against the security assignment that 67

was permissible under the C.civ.B.-C. Macdonald argued that the security assignment al-

lows a security mechanism that is outside a registration or publicity regime.174 The pledg-

ing of obligations creates the same problem because there as well, the pledging may be

public for creditor and debtor (first debtor) of the secured obligation, and the debtor of the

pledged obligation. It is undetectable however for other creditors of the first debtor.

In 2008, with the adoption of the Loi sur le transfert de valeurs mobilières et l’obtention 68

de titres intermédiés175, the Assemblée nationale added the word “physical” to art. 2702

C.c.Q. specifically to overturn the decision of the court.176 The word physical does so in

two ways. First, it clarifies that delivery can not mean the mere fulfillment of the conditions

of opposability (art. 1641 C.c.Q.177), because they contain no “physical” element. Sec-

ond, physical delivery seems to imply that the collateral must somehow be manifest in the

physical world and not just be an abstract legal right.178

173 See Pierre Ciotola/Antoine Leduc, Arrêt Val-Brillant: évolution ou régression de l’hypothèque mobilièreavec dépossession, en droit civil quebecois (2006) 40 R.J.T. 5 passim.

174 Macdonald, Change of Terminology? Change of Law?, supra n. 24, at 368.175 Loi sur le transfert de valeurs mobilières et l’obtention de titres intermédiés, S.Q. 2008, c. 20 (henceforth

cited as Loi no. 47 (Q.)).176 See Assemblée nationale du Québec, Commission des finances publiques, Journal des débats, vol. 40,

no. 47 (12 June, 2008) URL: http://www.assnat.qc.ca/fr/travaux-parlementaires/commissions / cfp - 38 - 1 / journal - debats / CFP - 080612 . htmlval (visited on07/30/2010); see re the problems of intertemporal law Payette, supra n. 89, at para. 135.

177 See para. 64 on p. 35.178 C.f. the “real” (i.e.) physical, nature of the pledge in Civil Law Payette, supra n. 89, at para. 821, 828,

with further references.

37

http://www.assnat.qc.ca/fr/travaux-parlementaires/commissions/cfp-38-1/journal-debats/CFP-080612.htmlval

http://www.assnat.qc.ca/fr/travaux-parlementaires/commissions/cfp-38-1/journal-debats/CFP-080612.htmlval


IV. The Reform of Credit Securities in the New Civil Code

A. Policy Questions about Credit Securities

The reform of the secured transaction regime has been critically analyzed in doctrine. Mac- 69

donald has based his analysis on identifying the fundamental choices behind secured trans-

actions law. He identifies five choices. First, which creditors should enjoy priority over

consensually secured creditors and why? Second, the scope of the security over the pat-

rimony of the debtor, depending on factors such as the inclusion of objective subrogation

and the permissibility of a floating or universal security. Third, the decisiveness of publicity

and priority. Should the first-in-time-rule and the publicity always prevail? Fourth, what

is the relation between securities that are, from the standpoint of the creditor, possessory

(pledge) and non-possessory (hypothec)? Fifth, should enforcement be done privately or

under judicial control?179

B. Policy of the Reform

The reform of the C.c.Q. pursued two goals regarding credit securities. One was to mod- 70

ernize the law of credit securities in a functionalist way, as was done with Art. 9 UCC. The

other goal was to retain the Civilian heritage.180 A functionalist reform requires consider-

ation of the policy goals behind secured credit. If the main goal is to facilitate credit by

making it less expensive,181 it follows that secured credit legislation should minimize the

transactions costs of secured lending.182

179 Macdonald, Change of Terminology? Change of Law?, supra n. 24, at 361.180 Ibid. at 358–359.181 See para. 8 on p. 6.182 Macdonald, Change of Terminology? Change of Law?, supra n. 24, at 360.

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C. Policy and Substantive Content

For Macdonald, secured lending aims at reducing transaction costs and several deductions 71

about the substantive content of credit securities thus follow: First, the rank of the security

should be clear as early as possible, preferably when the transaction is entered into. Second,

once established, the security should be as firm as possible and not be defeated by later

rights. Third, this should apply regardless of the form of the security.

The old C.civ.B.-C. did not meet these objectives. For this, Macdonald identifies several 72

reasons. One of them is that the the C.civ.B.-C. viewed secured transactions mostly as a

mean of consumer property acquisition and not a tool of business.183 The other main group

of reasons stems from the formalistic differences from a variety of securities, all fine-tuned

to a very specific purpose.184 This variety of credit securities for very specific purposes pre-

vented parties from adopting credit securities for their specific needs and limited contractual

freedom.

D. Evaluation of the Reform

In Macdonald’s view, given the first policy goal of the reform,185 and its implication on 73

content,186 the reform fails at making coherent choices for the five points he enumerated.187

The C.c.Q. for instance minimizes the occurrence of hidden ex post facto securities 74

such as legal hypothecs or priorities, which make the rank of a security unclear. How-

ever, title-based transactions are still allowed and treated differently from a hypothec.188

183 Macdonald, Change of Terminology? Change of Law?, supra n. 24, at 360.184 Ibid.185 See para. 70 on the preceding page.186 See para. 71.187 See para. 69 on the preceding page.188 Ibid. at 361–362.

39


Second, the relationship between securities and the patrimony is unclear if the patrimony

is modified by, e.g. a matrimonial regime or other forms of communal property, or statu-

tory deemed trusts.189 Third, Macdonald criticizes the continued existence of unregistered

preferred claims.190 Fourth, Macdonald maintains, the reform should have brought title

transfer and hypothec closer together.191 A fifth criticism is that the parallels between hy-

pothecs on movables and immovables and corporeals and incorporeals is perilous. This is

to be the case because immovables are usually not as tradeable as movables. Furthermore,

territory and buildings are relatively stable, whereas movables are transformed and mixed.

According to Macdonald, by treating hypothecs on immovables and movables as uniform,

the C.c.Q. imposes rules for immovables on movables more often than necessary and thus,

ultimately, makes movables less likely to be usable as collateral.192

V. Analysis

Looking at the credit security regime in Québec, one sees one major difference between the 75

approach to property between Civil Law and the Common Law. Movable and immovable

property are seen as being closer together in Civil Law than personal and real property in

Common Law. For instance, above I mentioned that an argument against the presumption of

hypothec is that the law on immovables requires clear title allocation.193 Thus, an argument

made for immovables is used to support a conclusion for movables as well.

This different approach can also explain the outcome of Caisse populaire Desjardins de 76

Val-Brillant v. Blouin194. The majority explained the outcome using a justification derived

189 Macdonald, Change of Terminology? Change of Law?, supra n. 24, at 362.190 Ibid.191 Ibid.192 Ibid. at 362–363, 370–371.193 See para. 37 on p. 24.194 Supra n. 165,

40


from Common Law personal property security law, thereby forgetting the fundamental dif-

ference between corporeals and incorporeals in Civil Law. Admittedly, the introduction of

a unitary security, the hypothec, has hidden that difference somewhat if one only looks at

secured transactions law. This is exactly what Macdonald criticized.195 In other circum-

stances, the difference has remained quite pronounced. One instance is the conflict of laws

on the assignment of obligations. Sec. 7 (1) OPPSA196 does not distinguish fundamen-

tally between intangibles and certain tangibles. Rather, intangibles are grouped together

with tangibles that change jurisdictions often. Both are treated as a sub-species of personal

property, whose location is not easily identified. The C.c.Q. on the other hand still differen-

tiates and contains in art. 3120 C.c.Q. a specific provision for the assignment of obligations.

Noticeably, the very placement of that provision makes it clear that in Civil Law, assign-

ment is seen as something relating to the law of obligations, not the law of property. This

parallels the inclusion of the assignment in art. 12 Convention on the Law Applicable to

Contractual Obligations197.

Finally, the minority opinion in Caisse populaire Desjardins de Val-Brillant v. Blouin198 77

differed in another point from the majority. All Civil Law judges pointed out that the assign-

ment of an obligation requires the consent of the original debtor to the deed of assignment,

a contract, not the assignment itself. The hypothecation of property does not know the same

underlying deed, and the entire process is thus not transferable.199 The latter is a property

law event, the former is a contractual event. A more pronounced distinction between those

195 See para. 54 on p. 32.196 Personal Property Security Act (Ontario), R.S.O. 1990, c. P.10, version as amended by S.O. 2006, c. 8,

s. 126; S.O. 2006, c. 34, and S.O. 2006 c. 8, s. 126, Sched. E, s. 3 (1).197 Convention on the Law Applicable to Contractual Obligations (EU), OJ 1980, L 266 (henceforth cited

as Rome Convention of 1980).198 Supra n. 165,199 Ibid. at para. 6.

41


two kinds of events, and the separation of the validity of the contract and the property

transfer is more common in many Civil Law system, deriving from Roman Law.200

200 Mark Moshinsky, The Assignment of Debts in the Conflict of Laws (1992) 108 L.Q.R. 591–625 at 594–595.

42

§ 6: European Secured Transactions Law

I. Introduction

Compared to Canada, the law of secured transactions differs more widely even within a 78

small sample of jurisdictions. Additionally, the Civil Law law of secured transactions in

Europe is very different from the law in Québec, the Common Law of England different

from the PPSAs.

II. Credit Securities on Movable and Incorporeal Property in Germany

The only codified credit security using movable property in Germany is the pledge (§ 1204 79

Bürgerliches Gesetzbuch201). According to § 1205 BGB, it is a necessary condition of the

pledge that the creditor gets possession of the collateral either directly or through an agent

other than the debtor.

To circumvent the necessity of delivery, practice has developed customary credit secu- 80

rities that involve the transfer of title to or retention of title by the creditor. These types of

security circumvent the delivery requirement of § 1205 BGB, but have been upheld by the

German Supreme Court (RGH, now BGH), ever since the introduction of the BGB.202 There

are three main categories of conventional credit securities apart from the pledge based on

201 Bürgerliches Gesetzbuch (Germany) (henceforth cited as BGB).202 See Münchener Kommentar zum Bürgerlichen Gesetzbuch, ed. by Kurt Rebmann/Franz-Jürgen Säcker/

Roland Rixecker, 5th ed. vol. 6 (München: C.H. Beck, 2009)/Oechsler (henceforth cited as MüKO-BGB/Contributor), Anhang nach §§ 929–936 Sicherungseigentum – Sicherungsübereignung, at para.3.

43


title allocation. They are the security transfer of title, the title retention and the assignment

for security purposes.

III. Credit Securities on Movable and Incorporeal Property in France

Current French law differs from Québec law. In France, the pledge (“gage”) entails both 81

collateralizing property with and without delivery. Thus, unlike in Roman and old French

law, the pledge no longer is a real contract (“contrat réel”),203 meaning a type of contract

which was not based on consent alone (albeit the consent itself may have had formal re-

quirements such as notarization), but included a possessory element as well.204 A pledge

on immovables (“gage immobilière”) entails delivery of the immovable. Pledging (“nan-

tissement”) on the other hand refers to using incorporeals as collateral.205

The new regime, while not terminologically, amounts to allowing both the hypotheca- 82

tion (without delivery), and pledging (with delivery) of immovables and movables and more

closely aligns the security regime for these two types of property.206 While it may have been

more coherent to refer to the pledge without delivery as a hypothec on movables, and to use

the term pledge solely for a security with delivery, the choice by the legislator was to use

different terms for securities depending on the type of property used as collateral.207

Of interest from a Canadian perspective may be that the C.c.Q. uses a different termi- 83

nology. There, the term hypothec refers to both securities with and without delivery, using

movables or immovables as collateral, because the hypothec is defined so broadly that it

encompasses all credit securities where the debtor holds title to the collateral (art. 2660

203 See para. 62 on p. 35.204 JurisClasseur: Civil Code (Paris: LexisNexis, 2010, looseleaf, current as of Apr. 16, 2010)/Legeais

(henceforth cited as JurisClasseur: Civil Code/Contributor), Art. 2284 à 2488, Fasc. 10, at 42.205 See ibid., Art. 2284 à 2488, Fasc. 10, at 40.206 See ibid., Art. 2284 à 2488, Fasc. 10, at 41.207 Ibid., Art. 2284 à 2488, Fasc. 10, at 72.

44


C.c.Q.). However, under the C.c.Q. unlike in French law, a pledge only refers to a hypothec

on movables with delivery, and is in fact a synonym for this type of security (art. 2665 (2)

C.c.Q.).

The title retention (“réserve de propriéte, propriété retenue à titre de garantie”) has 84

been codified for the first time with the Ordonnance n. 2006-346 du 23 mars 2006 relative

aux sûretés208. According to art. 2367 (1) C.civ. (Fr.) title retention means a contractual

provision, whereby the conveyance of title is suspended until payment is effected.209 The

article thus does not restrict title retention to sales contracts,210 a result that codifies prior

jurisprudence.211

The drafting committee originally envisioned that the title retention be made subject to 85

a publicity requirement such as registration in a register, but the legislator scrapped that

recommendation because it deemed it to be too drastic a departure from the French com-

mon law (droit commun).212 In commercial contexts, however, the creditor and debtor must

have a written agreement about the title retention which has been concluded prior to the

commencement of execution actions by a third party.213

The renumeration of credit securities on movables in art. 2329 C.civ. (Fr.) does not 86

mention a title transfer as a kind of transfer security. However, this was not due to the

fact that the legislator did not view the transfer of title for security purposes as a valid

208 Ordonnance n. 2006-346 du 23 mars 2006 relative aux sûretés (France), J.O. 2006, 4475 (henceforthcited as Ordonnance n. 2006-346).

209 “La propriété d’un bien peut être retenue en garantie par l’effet d’une clause de réserve de propriétéqui suspend l’effet translatif d’un contrat jusqu’au complet paiement de l’obligation qui en constitue lacontrepartie.”.

210 JurisClasseur: Civil Code/Crocq, supra n. 204, Art. 2284 à 2488, Fasc. 10, at 127.211 See, e.g., Beta Editorial ./. Charrière (in re Edi Loire), Cass. Com., Nov. 19, 2003, N ◦ 01-01.137, Bull.

civ. 2003, IV, no. 174.212 See JurisClasseur: Civil Code/Crocq, supra n. 204, Art. 2284 à 2488, at 134–137.213 See ibid., Art. 2367 à 2372, at 57–65.

45


credit security, but rather because this type of security was integrated in legislation that was

intended to introduce a Civil Law trust (“fiducie”) into the C.civ. (Fr.)214

The trust was introduced by the Loi no. 2007-211 du 19 février 2007 instituant le 87

fiducie215. According to art. 2011 C.civ. (Fr.) the trust entails the transfer of present or

future property (goods, rights, and credit securities) either separately or together to one or

several trustees who keep the trust property separate from their estate (patrimony) for a

pre-determined purpose benefitting one or several beneficiaries.216 Unlike the Québec trust

(art. 1260 C.c.Q.), the trust property thus does not form a patrimony without an owner that

is merely administered by the trustee. Rather, the trustee receives legal title to the property.

Because the trustee can be the beneficiary of the trust (art. 2016 C.civ. (Fr.)), it is pos- 88

sible to create a trust as a security instrument, where the property is transferred to the trust

to secure payment of an obligation by the settlor-debtor. However, it is argued that the

trust will not be widely used for security purposes because it is available for a limited class

of parties, and it has higher requirements than a hypothecation of accounts.217 One poten-

tial advantage of the security trust could be that it facilitates the collateralization the entire

property of the debtor with one transaction. A pledge of movable property, a hypothec on

immovables, and a hypothecation of accounts would require at least three transactions.

IV. Secured Transaction in Personal Property in England and Wales

England and Wales is the last major Commonwealth jurisdiction where personal property 89

214 JurisClasseur: Civil Code/Crocq, supra n. 204, Art. 2284 à 2488, Fasc. 10, at 122.215 Loi no. 2007-211 du 19 février 2007 instituant le fiducie (France), J.O. 2007, 3052 (henceforth cited as

Loi instituant le fiducie).216 “La fiducie est l’opération par laquelle un ou plusieurs constituants transfèrent des biens, des droits

ou des sûretés, ou un ensemble de biens, de droits ou de sûretés, présents ou futurs, à un ou plusieursfiduciaires qui, les tenant séparés de leur patrimoine propre, agissent dans un but déterminé au profitd’un ou plusieurs bénéficiaires.”.

217 JurisClasseur: Civil Code/Bouteiller, supra n. 204, Art. 2011 à 2031, Fasc. 10, at 16–18.46


security law still follows the common law model.218 New Zealand has passed a Personal

Property Securities Act219 in 1999. In 2009 in Australia, the Commonwealth has passed

the Personal Property Securities Act220, which received royal assent on December 14 and

is due to take full effect between May 2011 and February 2012. In England and Wales on

the other hand, according to classical analysis, all securities now used still derive from the

three basic forms, the mortgage, the charge and the pledge. The former two are usually,

but not necessarily, non-possessory, the latter one must be possessory.221 The number of

securities is not fixed (no numerus clausus), as Common Law is usually open to contractual

freedom, but rather these three types are applied in such flexible manner to encompass all

varieties used in legal practice.222 Most notably, the floating charge223 developed in legal

practice based on the established principles and contractual freedom until it was judicially

recognized in Re Panama, New Zealand and Australian Royal Mint Company224. Further-

more, English law knows certain statutory and common law liens and the right to distrain

chattel (similar to the origins of the Roman law hypotheca225), equitable liens, trust rights

such as in Barclays Bank Ltd v Quistclose Investment Ltd226, and proprietary rights deriving

from restitution.227 While restitutionary proprietary rights go against the principle of equal

distribution among unsecured creditors, Bridge et al. argue that the equal distribution is

already subverted by too easy access to securities in English law and thus these restitution-

218 See para. 16 on p. 12 sqq.219 Personal Property Securities Act (N.Z.), Elizabeth II. 1999 (henceforth cited as PPSA (NZ)).220 Personal Property Securities Act (Cth.), Elizabeth II. 2009, No. 130 (henceforth cited as PPSA (Cth.)).221 See Bridge et al., supra n. 59, at 634.222 Ibid. at 636.223 See para. 21 on p. 13.224 Supra n. 51,225 See para. 52 on p. 30.226 (1968), [1970] A.C. 567 (H.L.).227 See Bridge et al., supra n. 59, at 634–636.

47


ary rights act foremost against secured creditors.228 Title retention clauses are recognized

in English law,229 as are hire-purchases.230

There were shortcomings in the American and Anglo-Canadian law that contributed to 90

the replacement of common law by Art. 9 UCC and the PPSAs which are absent from En-

glish law, such as the absence of a floating charge and a lack of uniformity of law in the

US, and problems regarding registration requirements in both countries.231 Nevertheless,

the Law Commission acknowledges that the current system in England and Wales has its

problems. Notably, one of them is the absence of a coherent priority system that is not

determined by formalistic differences.232 In case the creditor is a company, English law

requires the charge to be entered into the Companies Register. However, the filing does not

guarantee priority because there is a fundamental difference between current English law

on the one hand and Anglo-Canadian and American law on the other hand. The difference

lies in the retention of different treatment of credit securities based on formal differences.

When speaking of current English law, one cannot even generally assume that the con-

cept of a “security interest” entails title-modification devices.233 The continued focus on

formal differences has two related consequences. First, priority is not only determined by

a general priority rule based on publicity, but may be governed by the formal difference

between credit securities.234 Second, title-modification devices can completely modify the

distribution scheme between creditors while being unrecognizable to parties outside the

debtor-creditor relationship of a title-modification device.235

228 Bridge et al., supra n. 59, at 636.229 See Aluminium Industrie Vaassen BV v Romalpa Aluminium Ltd [1976] 1 W.L.R. 676.230 See Helby v Matthews [1895] A.C. 471 (H.L.).231 Law Commission, supra n. 53, at 22.232 Ibid. at 23.233 See e.g. ibid. at 15–16.234 Ibid. at 23.235 See re this problem in current English law ibid. at 33–48.

48


V. Property Law and Secured Transactions in Scotland

A. Scots Law of Secured Transactions

Unlike in England and Wales, Scottish law is based on Civil Law.236 Apart from the trust, 91

which has been introduced into Scottish law, but may equally derive from the Roman fidei

commissum,237 Scottish law does not recognize a difference between equitable and legal

title.238

Because of its origins, the Scots law of secured transactions is different from English 92

law.239 However, the English concept of the floating charge was introduced in Scotland by

the Companies (Floating Charges) Act (Scotland)240. The Companies (Floating Charges

and Receivers) Act (Scotland)241 introduced the possibility of appointing receivers for the

collateral.

B. Sharp v Thomson

The interaction of English and Scots law played an important role in Sharp v Thomson242. 93

The facts were as follows. On 2 July 1984, Albyn Construction Ltd (Albyn) granted a float-

236 See generally Hélène David, “Introduction à l’étude du droit écossais” vol. 23 Systèmes de droit con-temporains (Paris: Librairie générale de droit et de jurisprudence, 1972) passim.

237 See for the history of the Scots trust Daniela Krantz, “Trusts im schottischen Recht” (Berlin: Lang,1997) passim; W. A Wilson, The Trust in Scots Law in: “Trusts and Trust-like Devices” vol. 5 UnitedKingdom Comparative Law Series (United Kingdom National Committee of Comparative Law, 1981)at 237–244.

238 Anja Fenge, Englisches Kreditsicherungsrecht versus schottisches Sachenrecht: Thorp v. Thomson(1999) 98 ZVglRWiss 410–420 at 411; William W McBryde, “The Law of Contract in Scotland” 3rd ed.(Edinburgh: Thomson/W. Green, 2007) at para. 1-21; Wilson, supra n. 237, at 237.

239 See generally David O’Donnell/Carey Miller, Security over Moveables: A Longstanding Reform Agendain Scots Law [1999] ZEuP 807–822.

240 Companies (Floating Charges) Act (Scotland) (U.K.), Elizabeth II. 1961, c. 46 (henceforth cited asCompanies (Floating Charges) Act (Scotland)).

241 Companies (Floating Charges and Receivers) Act (Scotland) (U.K.), Elizabeth II. 1972, c. 67 (henceforthcited as Companies (Floating Charges and Receivers) Act (Scotland)).

242 1997 S.L.T. 636, [1997] 1 B.C.L.C. 603 (H.L. Scot.) (cited to [1997] 1 B.C.L.C. 603).49


Albyn

Respondents

Thomson

Appellant

House sale

floating charge purchase credit security

crystallizedfloating charge

purchasecredit security

Fig. 1. Sharp v Thomson

ing charge over the whole property of their undertaking. Albyn concluded a sales contract

with the Thomsons for a flat. The Thomsons duly paid the price. On August 9, Albyn de-

livered an executed disposition of the flat to Thomsons’ solicitors. On August 10, a receiver

was appointed for the floating charge. On August 21, the disposition and a credit security

on the flat was entered in the Register of Sasines.243 The litigation unfolded between the

holders of the purchase credit security and the receiver of the floating charge about whose

credit security enjoyed priority. In order for the floating charge to have attached to the flat,

it was necessary that the flat was still Albyn’s property at the time of the crystallization and

had not yet passed into Thomson’s patrimony. Under Scots law, feudal title (ownership of

immovables) can only be created when the disposition is entered in the register. However,

the appellants, who were the holders of the credit security that was entered on August 21,

argued that Albyn had already lost its beneficial interest in the flat once the disposition was

243 Sharp v Thomson, supra n. 242, at 605–606.

50


delivered and therefore the flat was no longer its property.244 Sec. 462 (1) Companies Act245

provides:

It is competent under the law of Scotland for an incorporated company [. . . ], for thepurpose of securing any debt or other obligation [. . . ] to create [. . . ] a charge, in thisPart referred to as a floating charge, over all or any part of the property [. . . ] whichmay from time to time be comprised in its property and undertaking. [emphasis added]

The appellants also argued in the lower instances that Albyn held the property in con- 94

structive trust for the Thomsons, but that argument was dismissed by the House of Lords.246

However, the House of Lords accepted the main argument of the appellants that the meaning

of the word property in the Companies Act (1985) is not technical and thus excluded prop-

erty in which Albyn held legal title but could no longer convey without fraud.247 Therefore,

the flat was no longer held to be Albyn’s property in the sense of sec. 462 (1) Companies

Act (1985). Thus, the floating charge could not crystallize on the flat.

The decision has been criticized because it relied vey much on the distinction of ben- 95

eficial and legal title, which is unknown to Scots law outside of trusts law, and because

it failed to explain how these concepts can be squared with the Scots concept of absolute

ownership.248

C. Analysis

The decision of the House of Lord ignored the classic Civil Law principles on estate and 96

property.249 In Civil Law, the Thomsons could not have any property right in the apartment

244 Sharp v Thomson, supra n. 242, at 613.245 Companies Act (U.K.), Elizabeth II. 1985, c. 6 (henceforth cited as Companies Act (1985)).246 Sharp v Thomson, supra n. 242, at 623.247 Ibid. at 613–614.248 See Fenge, supra n. 238, at 419–420.249 See para. 15 on p. 11.

51


because as long as Albyn’s feudal title persisted, they could not even theoretically own

the property. Thus, however pragmatical the interpretation of sec. 462 (1) Companies Act

(1985), the apartment was not their property. The decision thus is precedent for ignoring a

fundamental principle of Civil Law in order to achieve a certain result.

VI. Conclusion

European secured transaction law differs much more internally than Canadian secured 97

transactions law. Whereas Canadian secured transaction law both within and outside

Québec uses (at least for the majority of secured transactions) one unitary credit security,

be it the hypothec or the PPSA security interest, each of the major European jurisdictions

has a wide array of security mechanisms. Because these mechanisms vary in the way they

function, insolvency legislation would need to find a definition of “credit security” that ad-

dresses these differences. Furthermore, allocation of title is still available for specific use as

a security mechanism and there is a hesitancy to abolish it as such.250 Any trans-European

insolvency law thus faces the challenge that property may be excluded from the estate or

patrimony of the debtor.

Furthermore, the vast differences between jurisdiction constitute a barrier to trade, as 98

securities may become un-attached if the locus rei changes. A creditor of a hypothec in

Québec will expect similar requirements for the opposability of his security, because the

hypothec and a PPSA security interest are comparable in that regard. Similarly, third parties

generally know what security interests to expect and how to check for them. Regarding the

250 See e.g. Scottish Law Commission, “Registration of Rights in Security by Companies” (Edinburgh: HerMajesty’s Stationery Office, 2004) at 2.

52


coordination of provincial private law, the situation in Canada is vastly more efficient than

in Europe.251 This was achieved all the while Québec maintained its distinct legal system.

251 See para. 9 on p. 7 sqq.

53

§ 7: Interaction of Insolvency Law and Provincial Law in

Canada

I. Introduction

The interaction of the insolvency law with secured transactions law is determined by the 99

way in which the trustee receives the power over the debtor’s property. The BIA governs

this question in two ways; first, it defines what property is. Second, it determines the

relationship of the trustee to the property. Regarding the first question, sec. 2 BIA252 defines

property. The relevant part reads as follows:

[. . . ] [. . . ]“property” “bien”“bien” “property”“property” means any type of property, whether sit- « bien » Bien de toute nature, qu’il soit situé auuated in Canada or elsewhere, and includes money, Canada ou ailleurs. Sont compris parmi les biens lesgoods, things in action, land and every description biens personnels et réels, en droit ou en equity, lesof property, whether real or person al, legal or eq- sommes d’argent, marchandises, choses non posses-uitable, as well as obligations, easements and every soires et terres, ainsi que les obligations, servitudesdescription of estate, interest and profit, present or et toute espèce de domaines, d’intérêts ou de prof-future, vested or contingent, in, arising out of or in- its, présents ou futurs, acquis ou éventuels, sur descident to property; biens, ou en provenant ou s’y rattachant.[. . . ] [. . . ]

The current definition of property was introduced by the Harmonization Act, No. 2 in 2004.

According to the intent of the drafters, as far as Civil Law property is concerned, the new

definition should end after “‘property’ means any type of property, whether situated in

252 Bankruptcy and Insolvency Act, R.S.C. 1985, B-3, version as amended by S.C. 2007, c. 29, s. 91, c. 36,s. 1.

54

§ 7: Interaction of Insolvency Law and Provincial Law in Canada

Canada or elsewhere”, because that is all that can be said about property in Civil Law.253

Previously, the French version of the definition would continue to further define property

using Civil Law terminology, such as “movable” and “immovable”, whereas the continuing

definition now uses French Common Law terminology, because it is solely addressed to a

Common Law audience.254

Regarding the second question, the fiduciary ownership of the trustee in bankruptcy is 100

a cornerstone of Canadian bankruptcy law.255 Sec. 71 BIA256 provides that the “property”

of the debtor shall vest in the trustee. Under Canadian law, the trustee holds the estate in a

kind of trust for the benefit of the creditors.257 This type of trust raises some issues from a

Civil Law perspective. The C.c.Q. provides for either the administration of the patrimony

of another (artt. 1299 C.c.Q.–1370 C.c.Q.), or the administration of a patrimony without

an owner (the “trust”, artt. 1260 C.c.Q.–1298 C.c.Q.). The latter is referred to as the trust.

It does not have a category where the owner is obligated to use property for the benefit of

another.

I analyze the two questions in the next two sections. Then, I turn to another feature of 101

the BIA, its characterization of the term credit security and how it relates to provincial law.

253 See para. 15 on p. 11.254 Bijuralism and Drafting Support Services Group, supra n. 45, at 40–41.255 Alain Vauclair/Lyne Tassé, Civil Law and Common Law Balanced on the Scales of Thémis: The Example

of the Bankruptcy and Insolvency Act = Droit civil et common law en équilibre sur la balance de Thémis(2003) 37 R.J.T. 5–17 = 5–17 at 15.

256 Bankruptcy and Insolvency Act, R.S.C. 1985, B-3, version as amended by S.C. 1997, c. 12, s. 67; S.C.2004, c. 25, s. 44.

257 Using the English term trust and the French term patrimoine fiducaire Jacques Auger/Albert Bohémier,The Status of the Trustee in Bankruptcy = Le statut du syndic (2003) 37 R.J.T. 57–112 = 59–114 at65=67.

55


II. The Debtor’s Property: Giffen and Lefebvre

A. Introduction

The question as to whether property subject to a security based on title-allocation is property 102

that becomes vested in the trustee has been the subject of decisions based on both Common

Law and Civil Law. The outcome in these cases however varied. The federal legislator has

already partly reacted to this difference.

B. Re Giffen

1. Decision

In Common Law Canada, the leading case on the question on to what extent property be- 103

comes vested in the trustee is Giffen (in re)258. In that case, the debtor, Giffen, obtained

a car from her employer under a long-term lease. Under sec. 1 Personal Property Secu-

rity Act259, such a long-term lease is a deemed security interest. The employer in turn had

leased the car from the respondent. The debtor then made an assignment in bankruptcy. The

respondent seized the car, and sold it. The trustee subsequently sought an order declaring

that it was entitled to the proceeds of the sale, because according to sec. 20 (b) (i) BCPPSA,

an unperfected security interest (including a deemed security interest such as a long-term

lease) is ineffective against the trustee in bankruptcy. In effect, the trustee claimed that the

car formed part of the debtor’s estate

In its decision, the Supreme Court of Canada stressed that the PPSAs did away with 104

traditional concepts of ownership, property and (hence) estate.260 Furthermore, the adopted

258 Supra n. 109,259 Personal Property Security Act (British Columbia), R.S.B.C. 1996, c. 35 (henceforth cited as BCPPSA).260 Giffen (in re), supra n. 109, at para. 25–28.

56


concept of “property” in the BIA is rather broad. Under the definition in the BIA, a right to

use and possession under a long-term lease is a property right.261 This right passes to the

trustee.262 Sec. 20 (b) (i) BCPPSA works to limit the effectiveness of the creditor’s unper-

fected security interest. The creditor cannot exercise his security interest against the trustee,

and since the trustee has a proprietary interest as well, she can take the car.263 The Supreme

Court held that the principle that the trustee in bankruptcy cannot succeed to property rights

greater than the ones enjoyed by the debtor is modified by sec. 20 (b) (i) BCPPSA.264 Fi-

nally, the Supreme Court held that sec. 20 (b) (i) BCPPSA does not disturb the distribution

scheme of sec. 136 BIA because the content of what a “security interest” is for the purpose

of the BIA is determined by provincial law.265 Thus, insofar as provincial law decides to

limit the effectiveness of a credit security in the event of insolvency, provincial law is at

liberty to do so.

2. Criticism

The decision of the Supreme Court amounts to a recognition of possession of collateral as 105

a sufficient condition for considering the collateral to be part of the debtor’s estate. It has

either done away with the necessity of title in order for property to be considered part of the

debtor’s estate or recognized that the PPSAs confer a form of title to the debtor of a title-

retention credit security.266 The inclusion of deemed security interests in the PPSAs extends

this widening of the property concept to property which is, substantially, not subject to a

261 Giffen (in re), supra n. 109, at para. 34.262 Ibid. at para. 35.263 Ibid. at para. 43.264 Ibid. at para. 50–56.265 Ibid. at para. 60 sqq.266 C.f. para. 26 on p. 17.

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security interest.267 Bridge et al. suggest that the decision’s policy is substantially unfair.

They state it may be fair to require owners to register their interest in competition against

individual other creditors. The decision in Giffen (in re)268, by putting the leased property

in the estate of the debtor, amounts to a complete withdrawal of the ownership for the

benefit of third parties who did not expect such a windfall (notably unsecured creditors).269

Against the argument that the lessor who fails to register only has herself to blame for the

consequences they argue that this begs the question as to why somebody who did not want

to convey ownership can be deprived of her ownership.270 One argument for this outcome

is to say that the inclusion of true leases is efficient as it avoids legal uncertainty and thus

in the end decreases transaction costs. However, in the context of a possible inclusion of

long-term leases in the UCC, Mooney suggests that requiring a lessor of a true lease to

register her interest would be economically inefficient because the cost associated with a

filing regime for true leases surpasses the benefit associated with it.271 By the inclusion

of long-term leases within the scope of the PPSAs, the provincial legislators have decided

against this argument and chose that long-term leases are to be included. One may criticize

this legislative choice, as Bridge et al. do, but it is the current law as it was applied in Giffen

(in re)272.

267 See Bridge et al., supra n. 59, at 603; c.f. Sprung Instant Structures Ltd. v. Caswan EnvironmentalServices Services Inc. [1997] 5 W.W.R. 280, 45 C.B.R. (3d) 47 (Q.B. Alta.) (cited to 45 C.B.R. (3d)47); for a historical and comparative account see Boris Kozolchyk, Tranfers of Personal Property by aNonowner: Its Future in Light of Its Past (1987) 61 Tul. L. Rev. 1453–1514.

268 Supra n. 109,269 Bridge et al., supra n. 59, at 604.270 Ibid.271 Charles W. Mooney Jr., The Mystery and Myth of Ostensible Ownership and Article 9 Filing: A Critique

of Proposals to Extend Filing Requirements to Leases (1987–1988) 39 Ala. L. Rev. 683–790 at 706–724; also Charles W. Mooney Jr., Filing Requirements For Personal Property Leases: A Comment andResponse to Professor Ziegel (1989-1990) 16 C.B.L.J. 419–438; see for a counter-argument Ziegel,Should Canada Adopt An Article 2A Type Law on Personal Property Leasing?, supra n. 54, at 391–397;see also Ronald C. C. Cuming, An Article 2A For Canada?: A Comment on Professor Ziegel’s Paper[1989–1990] C.B.L.J. 439–452 at 447–452.

272 Supra n. 109,

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C. Re Lefebvre

1. Prior Cases

It was unclear whether the ratio of Giffen (in re)273 would be applied in Civil Law cases 106

as well and there are several decisions that led up to the decisions by the Supreme Court.

Regarding the old artt. 2090 C.civ.B.-C. and 2098 C.civ.B.-C. the Court of Appeal had held

that an unpublished right of ownership is effective against the trustee, because the trustee

is not a purchaser for value.274 The court later decided that this jurisprudence is no longer

applicable under the new C.c.Q.275

The Superior Court of Québec was not unanimous in its decisions whether the same 107

reasoning as for the opposability of a hypothec276 would apply to case-scenarios compa-

rable to the Giffen (in re)277 case. In several decisions, the court had held that in cases of

conditional instalment sales, the seller lost her right of ownership if it was not published

according to the provisions of art. 1749 C.c.Q.278. In another decision, the court held the

opposite, because while it maintained that the trustee is a third party, it is not a third party to

which art. 1749 C.c.Q. refers.279 This decision was overturned by the Court of Appeal.280

The Court of Appeal decided similarly in Massouris (syndic de)281 regarding long-term

leases. These cases stood for the proposition that trustees had the status of third persons

relative to the original owners of the property.

The judgments of the Court of Appeal were criticized in doctrine because they would 108

273 Supra n. 109,274 Kowalski c. Trust Général du Canada [1976] C.A. 93 (Q.).275 Bédard (in re) [2005] R.J.Q. 1732, 22 C.B.R. (5th) 68 (C.A.) (cited to 22 C.B.R. (5th) 68) at para. 53.276 See para. 116 on p. 65 sq.277 Supra n. 109,278 Code civil du Québec, S.Q. 1991, c. 64, version as amended by S.Q. 1998, c. 5, a. 3.279 Banque Royale du Canada c. Mervis [2001] R.J.Q. 1885 (Sup. Ct.).280 Banque Royale du Canada c. Mervis [2002] R.J.Q. 2268 (C.A.).281 [2002] R.J.Q. 901, [2002] J.Q. no 595 (C.A.).

59


amount to a modification of the rule in sec. 67 BIA stating that only the property owned by

the debtor becomes part of the patrimony in bankruptcy, since the debtor is not the owner

of property subject to a title-retention.282

2. Re Lefebvre

The case of Lefebvre (Syndic de); Tremblay (Syndic de)283 was an appeal in two similar 109

cases. In both cases, the appellants leased their property to the debtor without registering

their lease. Art. 1852 C.c.Q.284 requires that certain leases be registered and thus published

in order for them to be effective against third parties. The debtors in both cases went

bankrupt before the appellants registered their respective rights. The appellants argued that

the C.c.Q. does not provide that a right of ownership diminishes into a security interest,

unlike the PPSAs, and that Giffen (in re)285 is thus not binding. The Supreme Court agreed

with that view. It held that the trustee is not a third party in relation to the property for the

purpose of art. 1852 C.c.Q. and that property leased but not owned by the debtor does not

form part of the property vested in the trustee.

The Supreme Court decision has been criticized by Duggan and Ziegel. According 110

to their analysis, the situation was comparable to Giffen (in re)286. They stress that the

Supreme Court in Giffen (in re)287 had characterized the issue as one of priority, not prop-

erty.288 Thus, the question should not be whether the trustee or the creditor has a better right

282 Paul-Emile Bilodeau, “Précis de la faillite et de l’insolvabilité” 2nd ed. (Brossard, Québec: CCH, 2004)at para. 275.

283 Supra n. 103,284 Code civil du Québec, S.Q. 1991, c. 64, version as amended by S.Q. 1998, c. 5, a. 8.285 Supra n. 109,286 Supra n. 109,287 Supra n. 109,288 Giffen (in re), supra n. 109, at para. 54, per Iacobucci J; Anthony J. Duggan/Jacob S. Ziegel, Justice

Iacobucci and the Canadian Law of Deemed Trusts and Chattel Security (2007) 57 U.T.L.J. 227 at 233.

60


of ownership but rather whether the creditor’s right would have been enforceable against

other creditors at the eve of bankruptcy.289

I argue that while this criticism may be valid as to how insolvency law should be (it 111

should not derive such consequences from formalism),290 it ignores that the reasoning of

the Supreme Court in Giffen (in re)291 also strongly relied on the possessory interest of the

debtor that becomes vested in the trustee.292 In fact, I earlier quoted Ziegel’s statement

that the PPSAs created an equitable proprietary interest of the debtor of a title-allocation

security.293 It seems to me that the Supreme Court implicitly embraced that view in Giffen

(in re)294. However, such a view cannot be applied to current Civil Law, because it has a

more rigid definition of “property”,295 and consequently there can be no proprietary interest

in something that is already appropriated by another.

3. Re Ouellet

In Ouellet (Syndic de)296, the Supreme Court held that property bought by the debtor as part 112

of the instalment sale does not pass into the debtor’s patrimony. Consequently, while the

creditor must register her security to oppose it against third parties, the same does not apply

vis-à-vis the trustee in bankruptcy because the latter only receives the patrimony of the

bankrupt debtor of which the property subject to an instalment sale never formed part.297

289 Duggan/Ziegel, Justice Iacobucci and the Canadian Law of Deemed Trusts and Chattel Security, supran. 288, at 234.

290 See para. 144 on p. 79.291 Supra n. 109,292 See para. 104 on p. 56 sq.293 See para. 26 on p. 17.294 Supra n. 109,295 See para. 15 on p. 11.296 Supra n. 104,297 Ibid. at para. 14.

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The court noted that the result would have been different under the new Harmonization 113

Act, No. 1.298 The definition of “secured creditor” in sec. 2 BIA now includes

the vendor of any property sold to the debtor under a conditional or instalment sale ifthe exercise of the person’s rights is subject to the provisions of Book Six of the CivilCode of Québec entitled Prior Claims and Hypothecs that deal with the exercise ofhypothecary rights.

This statutory definition has three problems. First, according to art. 1749 C.c.Q. the exercise

of the creditor’s rights is subject to said provisions if the creditor repossesses the property

in case of the debtor’s default. The reference in sec. 2 BIA to the C.c.Q. is thus not entirely

perfect, because possibly any instalment sale is subject to said provisions, the question is

rather to what occasion the creditor reacts. Second, art. 1749 C.c.Q. excludes instalment

sales that are consumer contracts (which is defined in art. 1384 C.c.Q.). Thus, if the debtor

is a consumer, the creditor is not a secured creditor, but an owner, within the meaning of the

BIA.299 There is no insolvency law rationale for such a distinction.300 Therefore, Grenon

argues a better approach would have been to create a completely autonomous definition

of secured creditor in the BIA that would have included any transaction that substantially

secured credit.301 Third, the definition in sec. 2 BIA only modifies the relationship between

298 “However, it should be noted that amendments made to the Bankruptcy and Insolvency Act since therelevant time would have led to a different result had they been applicable to this case. The amendmentsmade to this federal Act’s definition of ‘secured creditor’ by ss. 25 to 28 of the Federal Law—Civil LawHarmonization Act, No. 1, S.C. 2001, c. 4, equate a reservation of ownership in an instalment sale witha security for the trustee’s purposes. In the context of a bankruptcy, this right now is of no effect againstthe trustee if it is not published.” Ouellet (Syndic de), supra n. 104, at para. 15, per LeBel J.

299 See Roy (Syndic de) [2006] R.J.Q. 751 (C.A.).300 Grenon, supra n. 105, at 320.301 Grenon, supra n. 105, at 315–320; this was one of the alternatives suggested in a -pre-harmonization

study, see Jacques Auger/Albert Bohémier/Roderick Alexander Macdonald, The Treatment of Creditorsin the Bankruptcy and Insolvency Act and Security Mechanisms in the Civil Law of Québec in: “TheHarmonization of Federal Legislation with the Québec Civil Law and Canadian Bijuralism” ed. by De-partment of Justice (Ottawa: Department of Justice, Canada, 1997) 911 at 986-987.

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the trustee and the creditor, not between creditor and another creditor, even in cases where

the debtor is in insolvency.302

4. Ownership of the Trustee

The cases dealing with the extent of the estate passed to the trustee lead to an even bigger 114

question. From a Civil Law perspective, the trustee should be considered to become the

owner of the debtor’s property.303 However, there is no provision in the BIA that specif-

ically states that the debtor loses her ownership and the trustee becomes the new owner.

The Superior Court of Québec held in one decision that the bankrupt remains owner of

the property.304 However, the Court of Appeal had already held in prior decisions that the

trustee must be considered the owner of the property.305 The Supreme Court left that ques-

tion open, but stressed that the trustee’s function cannot easily be described by using the

302 See Maschinenfabrik Rieter AG c. Canadian Fidelity Mills Ltd. [2005] R.J.Q. 2829 (C.A.).303 Auger/Bohémier, supra n. 257, at 35.304 Auger c. Harvey [2000] R.J.Q. 2075 (Sup. Ct.) at para. 26-31.305 Lefaivre c. Côté [1976] C.A. 691 (Q.); Droit de la famille — 3712 [2000] R.D.F. 589 (C.A.).

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term “ownership”.306 Furthermore, the court held that the trustee has not the rights an owner

usually has under Civil Law because she cannot use the property as she sees fit.307

III. Trustee and Property: Québec Civil Law and the Trustee

As is the case regarding property subject to title-allocation quasi-security devices,308 115

Québec Civil law faces certain problems vis-à-vis the status of the trustee to the prop-

erty when it relates to the question as to the effects of hypothecs in insolvency. Again, the

question is whether the trustee can be considered to be a third party. Decisions regarding

the status of the trustee in bankruptcy and the effect of a hypothec from Québec courts

all revolve around the fact that the trustee is a third person in relationship to the bankrupt

debtor and the estate, especially since the former has obligations to the creditors as well.

306 “The strict concept of ownership accounts poorly for the nature of the trustee’s duties and the rightsa trustee exercises over the bankrupt’s property following the initial bankruptcy event. The trustee’srights are exercised only in relation to a patrimony whose content is legally defined in s. 67 B.I.A. Thispatrimony consists of only the property that could be liquidated for the benefit of the creditors. Thetrustee exercises certain statutory rights over this property that are in part similar to the rights of anowner. The trustee may dispose of the property of which he or she has seisin, but for a specific purpose,namely to pay the claims of the bankrupt’s creditors. [. . . ] The attribution and exercise of such powersdo not correspond perfectly to alienation, so much so that some authors have expressed very strongcriticism of the use of the assignee concept to describe the function of the trustee in bankruptcy (M.Cantin Cumyn, Traité de droit civil: L’administration du bien d’autrui (2000), at pp. 110-12).” Lefebvre(Syndic de); Tremblay (Syndic de), supra n. 103, at para. 35, per LeBel J.

307 “At any rate, the use of the concept of dévolution (vesting) in the French version of s. 71(2) B.I.A.does not eliminate the distinction between the two aspects of the trustee’s role following the initialbankruptcy event. In Mercure v. A. Marquette & Fils Inc., [1977] 1 S.C.R. 547, this Court clearly notedthis distinction, which serves as a basis for characterizing the legal position of the trustee when exercisingthe powers and performing the obligations the law ascribes to trustees. [. . . ] The trustee’s legal positionis therefore more akin to that of a third person in relation to the debtor. On the one hand, the trustee issubrogated to the bankrupt’s rights in the exercise of his or her powers to hold and dispose of propertyof which he or she has been granted seisin. On the other hand, the law treats the trustee as the creditors’legal mandatary who will liquidate the property entrusted to him or her for the creditors’ benefit. Thedual nature of the trustee’s duties does not therefore make it possible to regard the trustee as a thirdperson in relation to the bankrupt, given all the powers conferred upon the trustee by law in order topreserve and liquidate the debtor’s property. ” ibid. at para. 36, per LeBel J.

308 See para. 106 on p. 59 sqq.

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Unlike the Giffen (in re)309 decision,310 they are not based on policy decisions of the C.c.Q.

specifically referring to the trustee, but rather because the vesting of the estate in the trustee

is not envisioned by the C.c.Q. at all. The failure of the legislator to address the status of

the trustee in insolvency is mentioned by Grenon as well. In her view, this is an example

of a triumph of Civilian style over substantiveness. The Civilian style in this case means

a preference for one general rule over many specific sub-rules.311 In this case, however, I

argue it would have been better to limit the influence of the Civilian style and have at least

a sub-rule that addresses the important issue of the status of the trustee in insolvency.

In Musée des Sciences Naturelles de Québec Inc. (syndic) c. Banque de Montréal312, 116

the Court of Appeal of Québec held that publication of a hypothec is dispensable in the

creditor—debtor relationship, but the trustee is a representative of the other creditors and

thus a third party.313 The court referred to the earlier case of Civano Construction Inc. (in

re)314, where the Superior Court of Québec had held that the trustee is not the successor of

the bankrupt.315 In Wilfrid Noêl & fils ltée. c. Bouchard316, the court held that a hypothec

not properly published is ineffective against the trustee in bankruptcy because as far as the

309 Supra n. 109,310 See para. 103 on p. 56 sqq.311 Grenon, supra n. 105, at 311.312 J.E. 98-611, 2 C.B.R. (4th) 224, [1998] J.Q. no 814 (C.A. Q.) (cited to 2 C.B.R. (4th) 224).313 “Le Code civil établit une distinction entre l’opposabilité de l’hypothèque aux tiers et son efficacité

à l’égard des débiteurs des créanciers hypothécaires. L’opposabilité à l’égard des tiers est un effet dela publicité (2941 C.c.Q.) alors qu’entre les parties, l’enregistrement, sauf exception spécifique prévuepar le législateur, telle la déclaration de copropriété (1062 C.c.Q.), n’est pas nécessaire pour la validitéde l’acte. Le syndic cessionnaire des droits et biens du failli peut soulever l’inopposabilité de l’acted’hypothèque publié postérieurement à la faillite au motif qu’il porte préjudice aux créanciers qu’ilreprésente.” ibid. at para. 23–34.

314 Supra n. 169,315 “Le syndic n’est pas le successeur du failli, il en est un cessionnaire. En effet, la faillite est une cession

volontaire ou forcée d’une universalité de biens, comprenant, entre autres, les créances recevables, faitespar un débiteur insolvable en faveur de ses créanciers entre les mains d’un fiduciaire, d’un cessionnaire,le syndic. Les droits du syndic ne sont pas limités par ceux qu’avait le failli et ne se confondent pas aveceux; au contraire, ils sont distincts et parfois opposables.” ibid. at 49.

316 J.E. 2000-477, [2000] R.R.A. 84, [2000] J.Q. no 474 (C.A.) (cited to [2000] J.Q. no 474).

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creditor—debtor relationship is concerned, she, as a representative of all the creditors, is a

third party.317

IV. Characterization of a Credit Security: Prior Claims

A. General

As shown above,318 prior claims under the new C.c.Q. still do not enjoy any real right of 117

action. There are however arguments for and against letting prior claims survive insol-

vency. For the survival of prior claims, the following could be argued. First, the trustee in

bankruptcy is not a third-party acquirer of the patrimony of the debtor but rather a represen-

tative of all creditors.319 In a way, it can be said that the trustee realizes the common pledge

of all creditors.320 Prior claims before insolvency were opposable against all creditors and

their pledge. Thus, they should remain opposable against the trustee.321 Second, the hy-

pothec survives insolvency. Under the C.c.Q. a prior claim has priority over the hypothec.

Thus, making an argumentum a minori ad maius, if even hypothec survives, then the prior

claims should survive as well.322

On the other hand, realization of a prior claim requires a personal action against the 118

317 “Une hypothèque non régulièrement publiée (comme c’est le cas ici) peut cependant produire des effetsjuridiques entre les parties. Elle n’est cependant pas opposable aux tiers (art. 2082, 2083 et 2130 C.c.B.-C.) - (art. 2663, 2941 C.c.Q.). Or, le syndic est, en l’occurrence, bel et bien un tiers puisque c’est l’intérêtde l’ensemble des créanciers qu’il défend (Civano Construction inc : Gingras c. Crédit M.G. inc., [1962]C.S. 45; Poliquin c. Banque de Montréal, [1998] A.Q. no 814, C.A.Q. no 200-09-000198-959, du 6 mars1998). Il peut donc légalement soulever l’inopposabilité, à l’égard de la masse, d’une garantie consentiepar le failli, lorsque les formalités essentielles pour lui donner effet à l’égard des tiers n’ont pas étérespectées (Re : Giffen, [1998] 1 R.C.S. 91).” Wilfrid Noêl & fils ltée. c. Bouchard, supra n. 316, atpara. 12.

318 See para. 41 on p. 25 sq.319 See para. 100 on p. 55.320 See para. 30 on p. 20 sq.321 Payette, supra n. 89, at para. 207.322 Ibid. at para. 208.

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debtor, however, sec. 69 BIA stays all proceedings against the debtor. Thus, the condition

of realization of the prior claim can no longer be satisfied. Second, before the introduc-

tion of the C.c.Q. privileges under the C.civ.B.-C. were considered personal rights and thus

the creditors were not considered secured creditors within the meaning of the BIA.323 Prior

claims are structurally similar to the old privileges. The old privileges were general privi-

leges and did not attach to certain property. Under the C.c.Q. the same is true for the prior

claims mentioned in art. 2651 (4.) and (5.) C.c.Q. Consequently, jurisprudence has decided

that prior claims are not an in rem right and do not render the creditor to be a secured

creditor in the sense of the BIA.324

B. State Claims

In case of state claims, sec. 86 (1), (2) (b) BIA provides the state with an equal priority as if 119

they were entitled to prior claims, provided the state registers the claims. While registration

is not a necessary condition for a prior claim, art. 3017 C.c.Q. implies that the state can

voluntarily register its prior claim.325

C. Supplier Claims

Regarding the prior claim of a vendor, by only giving vendors an ordinary prior claim, the 120

C.c.Q. abolished a security right of the vendor that survived insolvency. Contrary to Ziegel’s

suggestion,326 sec. 81.1 (1) BIA thus does not level the playing field between suppliers in

323 See Bilodeau, supra n. 282, at para. 229–241.324 Château d’Amos ltée (Syndic) [1999] R.J.Q. 2612 (Sup. Ct.); Québec Inc. (Syndic de) [1998] R.D.I. 587

(Sup. Ct.); see also with further references Payette, supra n. 89, at para. 210.325 Payette, supra n. 89, at para. 211, there n. 333, and at para. 300–301.326 Jacob S. Ziegel, New and Old Challenges in Approaching Phase Three Amendments to Canada’s Com-

mercial Insolvency Laws (2002) 37 C.B.L.J. 75–118 at 102.

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Québec and elsewhere in Canada. Rather, it originally creates the right for all suppliers.

The only difference is that even without sec. 81.1 BIA, a Québec supplier would have a

right to resolve the entire contract.

D. Property Tax Claims

As mentioned above,327 there has been a revision of property tax prior claims. Under the 121

old regime, case law held that the municipal prior claim does not give the municipalities

secured creditor status under the BIA because the prior claim contained neither a real right

of action nor to a right to follow the property.328

The effect of the new art. 2654.1 C.c.Q. remains to be seen. On the one hand, it com- 122

plemented municipal prior claims with a right of following. On the other hand, Hull (Ville

de) c. Tsang329 indicated that not only the absence of the right of following, but also the

absence of a real right of action deriving from the prior claim is a reason not to qualify the

prior claim creditor as a secured creditor within the meaning of the BIA.

327 See para. 47 on p. 29.328 Lacoursière c. Westmount (Ville de) [1998] R.J.Q. 1784 (Sup. Ct.); Kostadinova Gantcheff (Syndic de)

[1996] R.J.Q. 3030, [1996] R.D.I. 603 (Sup. Ct.) (cited to [1996] R.J.Q. 3030); “La priorité ne constituepas un droit réel et il n’y a pas de droit de suite sur le bien affecté. Ce droit de suite existe pour lestaxes foncières, mais ce n’est pas en vertu de son statut de créance prioritaire, mais en vertu d’unedisposition législative expresse, soit l’article 498 de la Loi sur les cités et villes. [. . . ] De cette définition,n’est créancier garanti que celui détenant un droit réel sur les biens du débiteur et à défaut de procéduredans la Loi sur la faillite, le droit du Québec doit trouver application. Ainsi, le Code civil ne prévoitaucun recours particulier pour le créancier prioritaire, il doit utiliser les recours réservés aux créanciersordinaires, compte tenu qu’il ne détient aucun droit réel sur l’immeuble. Les recours hypothécaires desarticles 2748 et suivants ne lui sont pas disponibles.” Hull (Ville de) c. Tsang [1998] R.D.I. 343 (C.M.)at 345 per Daoust J. Château d’Amos ltée (Syndic), supra n. 324,

329 Supra n. 328,

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§ 8: Interaction of European Insolvency Law and the Law of

the Member States

I. Introduction

Unlike the BIA, the Council Regulation (EC) No 1346/2000 of 29 May 2000 on Insolvency 123

Proceedings330 does not introduce a harmonized insolvency regime in all Member States.

Rather, it determines jurisdiction, requires each Member State to recognize insolvency pro-

ceedings of another Member State, and determines the applicable law on the insolvency

proceedings (that is, the lex fori concursus, art. 4 Insolvency Regulation (EU)331). For the

content of the applicable law, recourse is had to the national insolvency laws. However,

the Insolvency Regulation (EU) creates a few questions regarding its use of legal concepts.

Furthermore, a further harmonization of insolvency law would open questions that Canada

had to deal with similarly.

II. The Debtor’s Property

The above-discussed332 decision of the House of Lords in Sharp v Thomson333 is one ex- 124

ample of how the differences between Common Law and Civil Law property are confronted

330 Council Regulation (EC) No 1346/2000 of 29 May 2000 on Insolvency Proceedings (EU), OJ 2000, L160, 1–18 (henceforth cited as Insolvency Regulation (EU)).

331 “Save as otherwise provided in this Regulation, the law applicable to insolvency proceedings and theireffects shall be that of the Member State within the territory of which such proceedings are opened,hereafter referred to as the ‘State of the opening of proceedings’.”

332 See para. 93 on p. 49 sqq.333 Supra n. 242,

69

§ 8: Interaction of European Insolvency Law and the Law of the Member States

in a European bijural system. I argued that the decision is bad precedent because it ignored

the law, namely Scottish Civil Law property principles, to achieve a certain result. Cana-

dian jurisprudence has been much more sensitive in this regard, as shown in the cases of

Ouellet (Syndic de)334 and Lefebvre (Syndic de); Tremblay (Syndic de)335.336 The result of

the latter case may rightfully be criticized as having an inefficient outcome. This, however,

is due to the current statutory law.

III. Trustee and Property

A. Common Law

Above337, I mentioned that under Canadian law, the trustee may be considered to hold 125

the estate in trust. A similar formula can be found in the British sec. 306 Insolvency Act

1986338.

B. Civil Law

1. Insolvency in Roman Law

It is unclear whether the Roman law drew a distinction between the insolvency of the 126

debtor, meaning his (the free Roman male) inability to perform his obligations, and the

over-indebtedness of a patrimony. As Kroppenberg points out, most classical texts deal

with semi-autonomous patrimonies, where for lack of a natural or legal person, only the

334 Supra n. 104,335 Supra n. 103,336 See para. 109 on p. 60 sqq.337 See para. 100 on p. 55.338 Insolvency Act 1986 (U.K.), Elizabeth II. 1986, c. 45 (henceforth cited as Insolvency Act 1986).

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latter could be the case.339 Certain texts indicate that Roman law drew a distinction be-

tween the two.340 At any rate, Roman Civil Law already accepted the principle that the

insolvent debtor loses the power to dispose of certain property which he legally owns. One

example is the case of alienable property that is part of the dower (“dos”), for instance the

slave who can be freed. Setting free the slave amounts to an alienation of the ownership. If

the husband were solvent, he could free the slave and the wife would retain a restitutionary

claim against the husband in case of the divorce. If the husband becomes insolvent, he may

no longer free the slave because in absence of a solvent patrimony, the slave is needed to se-

cure the wife’s claim which is due when the condition, dissolution of marriage the divorce,

is met.341

2. Divestment in Contemporary European Civil Law

Unlike in (predominantly) Common Law systems, in European Civil Law insolvency sys- 127

tems, the property is usually considered to remain vested in the debtor, who is only limited

in her power of disposal. The Civil Law insolvency thus retains characteristics of Roman

Law.342 The “trustee” is consequently known as the administrator. This may be due to the

fact that trust law is, or at least was, less developed in Civil Law systems than in Common

Law systems. Recognizing that legal title may be held for the benefit for another person

than the owner is a prerequisite for passing the estate to the trustee.

In German law, as an example of Continental Civil Law, there are several theories re- 128

garding the role of the administrator in insolvency and her relation to the debtor and the es-

339 Inge Kroppenberg, “Die Insolvenz im klassischen römischen Recht: Tatbestände und Wirkungen außer-halb des Konkursverfahrens” (Köln, Weimar, Wien: Böhlau, 2001) at 74–79.

340 Ibid. at 74, there n. 24, with references.341 C.f. ibid. at 81–85.342 See para. 126 on the previous page.

71


tate.343 According to one doctrine, the administrator is an agent of the debtor. Her capacity

to manage the estate derives from the fact that she acts in the debtor’s name (Vertretungs-

theorie = agency doctrine). The second doctrine holds that she is an organ of the debtor’s

estate, which has quasi-legal personality (Organtheorie = organ doctrine).344 The third and

prevalent doctrine holds that the administrator is an official fiduciary (“Treuhänder”) who

acts in his own name but has a power of disposal (“Verfügungsbefugnis”). Accordingly,

this doctrine is called the office doctrine (“Amtstheorie”) because the administrator is con-

sidered to hold office by virtue of which she receives the power of disposal. However, in

all three theories, the administrator does not become the owner of the estate. Instead, as

in Roman law345 the debtor remains the owner and is instead limited in her rights over her

property.

C. Harmonization

Harmonizing the rules for the passing of the property faces the choice of using either the 129

long-standing Civil Law principle of keeping the property with the debtor and either lim-

iting her rights or vesting certain rights in an administrator, or using the long-standing

Common Law concept of a trust. The Québec example shows that Civil Law systems may

have problems when they face a trustee who administers and owns the property for the ben-

efit of another. In Québec, the passing of the property from debtor to trustee has certain

reflexive consequences which are not based on conscious policy-decisions of the legislator.

A harmonization of the divestment of the debtor’s property that would abolish the deeply-

343 See generally Münchener Kommentar zur Insolvenzordnung, ed. by Hans-Peter Kirchhof/JürgenLwowski/Rolf Stürner, 2nd ed. vol. 1 (München: C.H. Beck, 2007)/Graeber (henceforth cited as MüKo-InsO/Contributor), § 56 at para. 142 sqq.

344 Ibid., § 56 at para. 144.345 See para. 126 on p. 70.

72


rooted principle that the property remains with the debtor thus would need to be undertaken

in close coordination with the general private law legislators (either the Member States or

the respective sub-national entities as the case may be).

IV. Characterization of a Credit Security

The main provision in the Insolvency Regulation (EU) dealing with the interaction of credit 130

securities and insolvency proceedings is art. 5 Insolvency Regulation (EU). This provision

is particularly interesting because the preamble states that the goal of the Insolvency Regu-

lation (EU) is to minimize forum shopping by creating “provisions governing jurisdiction

for opening insolvency proceedings and judgments which are delivered directly on the basis

of the insolvency proceedings and are closely connected with such proceedings.” Art. 5 In-

solvency Regulation (EU), read literally, however makes a substantive statement regarding

the fate of credit securities in case of the commencement of insolvency proceedings. One

possible interpretation of art. 5 Insolvency Regulation (EU) is to say that it only clarifies that

the law applicable to credit securities is not the law applicable on the insolvency proceed-

ings but rather determined by general private international law rules (thus either the lex rei

sitae or law of the jurisdiction where the security was established); another interpretation is

to see art. 5 Insolvency Regulation (EU) as an indeed substantive norm that replaces private

international law and substantively prescribes that any insolvency proceedings in Europe

must not infringe upon pre-existing rights of secured creditors.346

Art. 5 Insolvency Regulation (EU) demonstrates a remarkable ignorance regarding the 131

types of credit securities in European legal systems. The words mortgage and hypothèque

346 See generally Münchener Kommentar zum Bürgerlichen Gesetzbuch, ed. by Kurt Rebmann/Franz-Jürgen Säcker/Roland Rixecker, 4th ed. vol. 11 (München: C.H. Beck, 2006)/Kindler (henceforth citedas MüKo-BGB/Contributor), Internationales Insolvenzrecht, at para. 253 sq., at para. 266 sqq.

73


are used interchangeably, even though a mortgage involves the transfer of title from the

mortgagor to the creditor. The same is not necessarily true for a hypothèque. In Canadian

legal French at least, a hypothèque can denote a title-transfer security as well as hypoth-

ecation of the asset.347 Metropolitan legal French does not use the term in that sense. In

German, the word Hypothek is used, which exclusively denotes a credit security where title

remains with the debtor. Additionally, in German law, the Hypothek is not even the security

interest most commonly used for immovable property. In German law, according to § 1113

BGB, a Hypothek is a credit security whose existence is dependent upon the existence of a

personal obligation. A far more prevalent type of credit security in immovables under Ger-

man law is the Grundschuld, § 1191 BGB, (“land charge”), which is more advantageous

for the creditor.348 The particular reference to a hypothec the Insolvency Regulation (EU)

therefore does not make much sense as far as German law is concerned.

The same problem arises for the use of the word lien and gage (Pfand in German). A 132

common-law lien in England is possessory, the gage in France not necessarily (art. 2337

C.civ. (Fr.)) A German Pfandrecht, § 1373 BGB, can be attached to intangibles, a common-

law lien and a French gage, art. 2337 C.civ. (Fr.) art. 2355 C.civ. (Fr.) not.

Such an indiscriminate use of over-specific terms, however, in this context is not yet 133

harmful, because the definition in art. 5 (1) Insolvency Regulation (EU) (“rights in rem”)

is broad enough to include different kinds of security interests. The characterization of a

right as in rem or in personam could be done under private international law principles ac-

347 Bijuralism and Drafting Support Services Group, supra n. 45, at 37.348 Kommentar zum Bürgerlichen Gesetzbuch, ed. by Heinz Georg Bamberger/Herbert Roth, 2nd ed. vol. 2

(München: C.H. Beck, 2008)/Rohe (henceforth cited as Bamberger/Roth/Contributor), § 1191, at para.6; regarding deliberations to create a uniform land charge in Central European jurisdictions see HansWolfsteiner/Otmar Stöcker, Nicht-akzessorisches Grundpfand für Mitteleuropa [1999] DNotZ 451–467.

74


cording to the law of the land where the property is situated (lex rei sitae) or autonomously

according to a terminology specific to the Insolvency Regulation (EU).349

Furthermore, art. 5 Insolvency Regulation (EU) is vague in other regards, for instance 134

whether a trust would be included as a persisting right. This seems especially doubtful

considering that a trust is characterized as a personal obligation for private international

law purposes in Civil Law systems.350 This is a problem for secured creditors, if, as in

France,351 a trust can be used as one way of creating a floating credit security. Similar

problems could arise for title-allocation securities such as the ones that are widely used in

Germany.

As these examples demonstrate, the Insolvency Regulation (EU) does not give a con- 135

vincing answer to the question who the “secured creditors” are it aims to protect. To sug-

gest that the Insolvency Regulation (EU) can already be interpreted autonomously because

“credit security” is a well-established term in European law,352 does therefore not seem

feasible because it ignores that there is no European Private Law that could give meaning

to terms like mortgage or “right in personam”.

Canadian federal law leaves it to provincial law to determine the content of credit se- 136

curities. EU legislation on the other hand either tries an autonomous definition of rights in

rem or leaves it to private international law of the Member States to determine whether or

not a right falls within the scope of art. 5 Insolvency Regulation (EU). Both alternatives of

European law have their shortcomings, as the examples demonstrate.353

349 MüKo-BGB/Kindler, supra n. 346, Internationales Insolvenzrecht, at para. 255 sqq., at para. 279.350 See generally MüKo-BGB/Wendehorst, supra n. 346, Art. 43 EGBGB, at para. 49.351 See para. 86 on p. 45 sq.352 Regarding the list of credit securities in Art. 5 MüKo-BGB/Kindler, supra n. 346, Internationales Insol-

venzrecht, at para. 256.353 See para. 134 sqq.

75

§ 9: Conclusion

In the preliminary chapter on bijuralism, I came to the conclusion that the maintenance 137

of two distinct legal system within one wider jurisdiction may be justified for reasons that

transcend a purely economic and transactional standpoint. The aim of good bijuralism is

then to minimize the frictions that can result from having distinct legal systems. This takes

place on three levels. First, within the legislative process on a sub-level. Second, within the

jurisprudence on the sub-level. Third, on the encompassing meta-level.

On the first level, there exists differences between the legislation in Québec and the 138

other Canadian provinces. However, these differences are far less pronounced than between

European jurisdictions. Admittedly, European jurisdictions have in common that they all

retain formal differences between securities, whereas in Canada, only Québec retains such a

differentiation. However, the formal differences still in existence are incompatible amongst

each other. English secured transaction law is different from Scots law, which is different

from French law, which is in turn different from German law. A complete harmonization in

the form of a introduction of a uniform PPSA style notice-filing system throughout Europe,

including European Civil Law systems seems unlikely. For example, the Scottish Law

Commission noticed, with hesitance, that an introduction of a notice-filing based system of

priority based on the unitary concept of a “security interest” constitutes a major problem

for a system based on Civil Law property law.354

Given the unlikelihood of a uniform secured transaction law, Québec is an example of a 139

354 Scottish Law Commission, supra n. 250, at 2.

76

§ 9: Conclusion

good approximation. It has introduced a security device, the hypothec, which is fundamen-

tally similar to the security-interest concept used in the PPSAs. Secured transactions law in

Common Law Canada and Civil Law Québec is based on very different concepts of what

property and estate and patrimony mean. Historically, the Roman Law and the Common

Law were very different. Starting from these different positions, secured transaction law in

Canada has converged much more than in Europe. Thus, on this level, there is much more

coordination within Canada compared to Europe.

Nevertheless, certain differences persist between Québec law and the law of the PPSA 140

provinces. These differences are mainly based on the continuing importance of title alloca-

tion in Québec law. This in turn is an outflow of the rigid concept of property in Civil Law

as well as a different answer to the question “whether non-security concepts are seen as par-

asitic upon the concept of security, or whether the concept of security is parasitic upon the

other basic concepts of private law, notably those relating to property and obligation.”355

This difference should not be over-stressed however. Québec Civil Law does not allow a

security transfer of title, only a retention. This device is most commonly used in purchase

agreements. The PPSA envision a super-priority for purchase-agreement creditors as well.

Admittedly, this super-priority is subject to a registration requirement which has a publicity

and warning effect for third parties. In a Civil Law system such as Germany, the answer to

the permissibility of such a super-priority without publicity would be to say that given the

ubiquitous nature of purchase agreements, third parties are deemed to have had sufficient

reason to inquire about the existence of such an agreement and thus constructive notice.356

Therefore, introducing a PPSA-style system in the European Common Law systems, 141

355 Bridge et al., supra n. 59, at 657–658, see above para. 33 on p. 21.356 C.f. BGH, Urt. June 18, 1980 — VIII ZR 119/79 (Frankfurt), BGHZ 77, 274 =̂ NJW 1980, 2245 (cited

to NJW 1980, 2245) at 2247.

77

§ 9: Conclusion

alongside the Eastern European jurisdictions where they already exist,357 and a Québec-

style unitary security device such as the hypothec, with the retention of title-based transac-

tion for the benefit of the original owner of the property, in European Civil Law jurisdictions

seems to be a feasible step towards harmonization based on the origins of the respective le-

gal systems. Such an approach would be preferable to both the introduction of a PPSA

system in Civil Law systems that is wholly incompatible with the foundations of Civil Law

property, as well as the retention of the current state with a multiplicity of systems that are

incompatible to each other, and put even more stress on formalism without justification. It

is also preferable to a modernization such as the one that took place in France that replaced

old formalistic differences with new ones.

However, Québec Civil Law has not completely reacted to the challenges of bijural- 142

ism. Unlike the PPSA provinces, which have made express policy choices regarding the

status of the trustee to the debtor’s collateralized property, Québec Civil Law struggles

with the proper characterization of the trustee in bankruptcy. Specific provisions regarding

the trustee are thus desired to clarify the matter. This shows that bijuralism is not only

a question for the overarching jurisdiction but for its constituent systems as well. This

should be kept in mind in Europe. Any overarching insolvency legislation must be met by a

corresponding secured transaction legislation on the sub-level that addresses the challenge

resulting from the fact that the status of the trustee or administrator may not be fully derived

from legal concepts of the own legal system.

On the second level of bijuralism, the Canadian record is mixed. On the one hand, 143

the decisions in Lefebvre (Syndic de); Tremblay (Syndic de)358 and Ouellet (Syndic de)359

357 See Scottish Law Commission, supra n. 250, at 2, n. 5.358 Supra n. 103,359 Supra n. 104,

78

§ 9: Conclusion

show an awareness of the Supreme Court for the fundamental differences between Civil

Law and Common Law and when they result in different outcomes. The Supreme Court

put even more emphasis on these differences than the Court of Appeal of Québec had done

in Banque Royale du Canada c. Mervis360, where the Court of Appeal justified its result

with reference to Giffen (in re)361.362 On the other hand, the Supreme Court threw Civil

Law principles overboard in Caisse populaire Desjardins de Val-Brillant v. Blouin363. The

casual reference to Common Law reasoning in this case mirrors the House of Lord’s attitude

in Sharp v Thomson364. The Canadian example here shows that the legislator on the sub-

level has to carefully draft its legislation when the court of last resort for matters of the

sub-level is itself placed on the meta-level.

Finally, on the third level, Canada’s record again is ambivalent. On the one hand, it 144

has introduced a programme to make the federal law more consistent with the existence of

the two legal systems. For instance, the legislator has put emphasis on having a coherent

terminology that makes sense for both systems.365 That is something lacking in European

legislation on the meta-level.366 On the other hand, the absence of a really autonomous

definition of what a secured creditor is for the purpose of the BIA creates a problem. Dug-

gan and Ziegel criticize the continued different treatment of title-allocation devices and

hypothec if Québec law comes into play.367 As a point of lege ferenda, I agree with their

criticism. Legal events should not be treated differently because of formal differences alone

if they are substantially the same, at least if they are substantially the same as far as their

360 Supra n. 280,361 Supra n. 109,362 See Banque Royale du Canada c. Mervis, supra n. 280, at para. 20, 33.363 Supra n. 165,364 Supra n. 242,365 See para. 99 on p. 54.366 See para. 131 on p. 73 sq.367 See para. 110 on p. 60 sq.

79

§ 9: Conclusion

legal effects are of importance for the litigation in question. Yet de lege lata, there was noth-

ing the Supreme Court could have done, given the fundamental difference between Quebec

Civil Law and the PPSA regarding property. However, as Grenon points out, this problem

could have been avoided if the federal legislator had made an autonomous definition of

what constiutes a “secured creditor” for the purpose of the BIA.368 Another problem is the

uncertainty surrounding the status of prior claims in insolvency. Partly, this uncertainty can

be blamed on the Québec legislator, who has maintained such a curious real credit security

which is yet unenforceable against the property itself. However, would the BIA define who

is to be considered a secured creditor, this uncertainty could be reduced. European insol-

vency legislation, being in a much more nascent state, itself is unclear as to what constitutes

a credit security.369 The Canadian example here demonstrates the need for a clear defini-

tion. European legislation can also benefit from the Canadian literature written in support

for a definition of secured creditor particular to insolvency law that is able to bridge the

Common Law-Civil Law divide.

368 See para. 113 on p. 62.369 See para. 133 on p. 74 sq.

80

Appendix A: Legislative Texts

Code civil du Québec

Art. 1384 Art. 1384

A consumer contract is a contract whose field of ap- Le contrat de consommation est le contrat dont leplication is delimited by legislation respecting con- champ d’application est délimité par les lois rela-sumer protection whereby one of the parties, being a tives à la protection du consommateur, par lequelnatural person, the consumer, acquires, leases, bor- l’une des parties, étant une personne physique, lerows or obtains in any other manner, for personal, consommateur, acquiert, loue, emprunte ou se pro-family or domestic purposes, property or services cure de toute autre manière, à des fins personnelles,from the other party, who offers such property and familiales ou domestiques, des biens ou des servicesservices as part of an enterprise which he carries on. auprès de l’autre partie, laquelle offre de tels biens

ou services dans le cadre d’une entreprise qu’elle ex-ploite.

[1991, c. 64, a. 1384] [1991, c. 64, a. 1384]

Art. 1641 Art. 1641

An assignment may be set up against the debtor and La cession est opposable au débiteur et aux tiers, dèsthe third person as soon as the debtor has acquiesced que le débiteur y a acquiescé ou qu’il a reçu unein it or received a copy or a pertinent extract of the copie ou un extrait pertinent de l’acte de cession ou,deed of assignment or any other evidence of the as- encore, une autre preuve de la cession qui soit op-signment which may be set up against the assignor. posable au cédant.Where the debtor cannot be found in Québec, the as- Lorsque le débiteur ne peut être trouvé au Québec, lasignment may be set up upon publication of a notice cession est opposable dès la publication d’un avis deof assignment in a newspaper distributed in the lo- la cession, dans un journal distribué dans la localitécality of the last known address of the debtor or, if de la dernière adresse connue du débiteur ou, s’ilhe carries on an enterprise, in the locality where its exploite une entreprise, dans la localité où elle a sonprincipal establishment is situated. principal établissement.[1991, c. 64, a. 1641; 1992, c. 57, s. 716] [1991, c. 64, a. 1641; 1992, c. 57, s. 716]

Art. 1749 Art. 1749

A seller or transferee who, upon the default of the Le vendeur ou le cessionnaire qui, en cas de défautbuyer, elects to take back the property sold is gov- de l’acheteur, choisit de reprendre le bien vendu esterned by the rules regarding the exercise of hypothe- assujetti aux règles relatives à l’exercice des droits

81


cary rights set out in the Book on Prior Claims and hypothécaires énoncées au livre Des priorités et desHypothecs; however, in the case of a consumer con- hypothèques; toutefois, en cas de contrat de con-tract, only the rules contained in the Consumer Pro- sommation, seules les règles de la Loi sur la protec-tection Act are applicable to the exercise by the tion du consommateur sont applicables à l’exerciceseller or transferee of the right of repossession. du droit de reprise du vendeur ou cessionnaire.If the reservation of ownership required publication Si la réserve de propriété devait être publiée maisbut was not published, the seller or transferee may ne l’a pas été, le vendeur ou cessionnaire ne peuttake the property back only if it is in the hands of reprendre le bien vendu qu’entre les mains dethe original buyer; the seller or transferee takes the l’acheteur immédiat du bien; il reprend alors le bienproperty back in its existing condition and subject dans l’état où il se trouve et sujet aux droits etto the rights and charges with which the buyer may charges dont l’acheteur a pu le grever.have encumbered it.If the reservation of ownership required publication Si la réserve de propriété devait être publiée mais nebut was published late, the seller or transferee may l’a été que tardivement, le vendeur ou cessionnairelikewise take the property back only if it is in the ne peut, de même, reprendre le bien vendu qu’entrehands of the original buyer, unless the reservation les mains de l’acheteur immédiat du bien, à moinswas published before the sale of the property by the que la réserve n’ait été publiée antérieurement à laoriginal buyer, in which case the seller or transferee vente du bien par cet acheteur, auquel cas il peutmay also take the property back if it is in the hands aussi le reprendre entre les mains de tout acquéreurof a subsequent acquirer; in all cases, the seller or subséquent; dans tous les cas, le vendeur ou ces-transferee takes the property back in its existing con- sionnaire reprend le bien dans l’état où il se trouve,dition, but subject only to such rights and charges mais sujet aux seuls droits et charges dont l’acheteurwith which the original buyer may have encumbered avait pu le grever au moment de la publication de lait at the time of the publication of the reservation of réserve et qui avaient alors été publiés.ownership and which had already been published.[1991, c. 64, a. 1749; 1998, c. 5, a. 3] [1991, c. 64, a. 1749; 1998, c. 5, a. 3]

Art. 1852 Art. 1852

The rights resulting from the lease may be pub- Les droits résultant du bail peuvent être publiés.lished.Publication is required, however, in the case of Sont toutefois soumis à la publicité les droits ré-rights under a lease with a term of more than one sultant du bail d’une durée de plus d’un an por-year in respect of a road vehicle or other movable tant sur un véhicule routier ou un autre bien meu-property determined by regulation, or of any mov- ble déterminés par règlement, ou sur tout bien meu-able property required for the service or operation ble requis pour le service ou l’exploitation d’une en-of an enterprise, subject, in the latter case, to regu- treprise, sous réserve, en ce dernier cas, des exclu-latory exclusions; effect of such rights against third sions prévues par règlement; l’opposabilité de cespersons operates from the date of the lease provided droits est acquise à compter du bail s’ils sont publiésthey are published within 15 days. A lease with a dans les 15 jours. Le bail qui prévoit une période determ of one year or less is deemed to have a term of location d’un an ou moins est réputé d’une durée demore than one year if, by the operation of a renewal plus d’un an lorsque, par l’effet d’une clause de re-clause or other covenant to the same effect, the term nouvellement, de reconduction ou d’une autre con-of the lease may be increased to more than one year. vention de même effet, cette période peut être portée

à plus d’un an.The transfer of rights under a lease requires or is La cession des droits résultant du bail est admise ouopen to publication, according to whether the rights soumise à la publicité, selon que ces droits sont eux-themselves require or are open to publication. mêmes admis ou soumis à la publicité.[1991, c. 64, a. 1852; 1998, c. 5, a. 8]. [1991, c. 64, a. 1852; 1998, c. 5, a. 8]

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Art. 2651 Art. 2651

The following are the prior claims and, notwith- Les créances prioritaires sont les suivantes et,standing any agreement to the contrary, they are in lorsqu’elles se rencontrent, elles sont, malgré touteall cases collocated in the order here set out: convention contraire, colloquées dans cet ordre:1) legal costs and all expenses incurred in the com- 1◦ Les frais de justice et toutes les dépenses faitesmon interest; dans l’intérêt commun;2) the claim of a vendor who has not been paid the 2◦ La créance du vendeur impayé pour le prixprice of a movable sold to a natural person who does du meuble vendu à une personne physique quinot operate an enterprise; n’exploite pas une entreprise;3) the claims of persons having the right to retain 3◦ Les créances de ceux qui ont un droit de rétentionmovable property, provided that the right subsists; sur un meuble, pourvu que ce droit subsiste;4) claims of the State for amounts due under fiscal 4◦ Les créances de l’État pour les sommes dues enlaws; vertu des lois fiscales;5) claims of municipalities and school boards for 5◦ Les créances des municipalités et des commis-property taxes on taxable immovables as well as sions scolaires pour les impôts fonciers sur les im-claims of municipalities, specially provided for by meubles qui y sont assujettis, de même que celleslaws applicable to them, for taxes other than prop- des municipalités, spécialement prévues par les loiserty taxes on immovables and movables in respect qui leur sont applicables, pour les taxes autres queof which the taxes are due. foncières sur les immeubles et les meubles en raison

desquels ces taxes sont dues.[1991, c. 64, a. 2651; 1999, c. 90, s. 41] [1991, c. 64, a. 2651; 1999, c. 90, a. 41]

Art. 2660 Art. 2660

A hypothec is a real right on a movable or immov- L’hypothèque est un droit réel sur un bien, meubleable property made liable for the performance of an ou immeuble, affecté à l’exécution d’une obligation;obligation. It confers on the creditor the right to fol- elle confère au créancier le droit de suivre le bienlow the property into whosever hands it may be, to en quelques mains qu’il soit, de le prendre en pos-take possession of it or to take it in payment, or to session ou en paiement, de le vendre ou de le fairesell it or cause it to be sold and, in that case, to have vendre et d’être alors préféré sur le produit de cettea preference upon the proceeds of the sale ranking vente suivant le rang fixé dans le présent code.as determined in this Code.[1991, c. 64, a. 2660] [1991, c. 64, a. 2660]

Art. 2702 Art. 2702

A movable hypothec with delivery is granted by L’hypothèque mobilière avec dépossession est con-physical delivery of the property or title to the cred- stituée par la remise matérielle du bien ou du titre auitor or, if the property is already in his hands, by his créancier ou, si le bien est déjà entre ses mains, parcontinuing to physically hold it, with the grantor’s le maintien de la détention matérielle, du consente-consent, to secure his claim. ment du constituant, afin de garantir sa créance.[2008, c. 20, a. 131] [2008, c. 20, a. 131]

83


Insolvency Regulation (EU)

Note: The Insolvency Regulation (EU) has official versions in all 23 languages of the European Union, whichare equally legally binding throughout the entire territory. For simplicity’s sake, only the English and Frenchversions are given.

Article 5 Article 5

Third parties’ rights in rem Droits réels des tiers

1. The opening of insolvency proceedings shall not 1. L’ouverture de la procédure d’insolvabilitéaffect the rights in rem of creditors or third parties n’affecte pas le droit réel d’un créancier ou d’un tiersin respect of tangible or intangible, moveable or im- sur des biens corporels ou incorporels, meubles oumoveable assets - both specific assets and collec- immeubles - à la fois des biens déterminés et des en-tions of indefinite assets as a whole which change sembles de biens indéterminés dont la compositionfrom time to time - belonging to the debtor which est sujette à modification - appartenant au débiteur,are situated within the territory of another Member et qui se trouvent, au moment de l’ouverture de laState at the time of the opening of proceedings procédure, sur le territoire d’un autre État membre.2. The rights referred to in paragraph 1 shall in par- 2. Les droits visés au paragraphe 1 sont notamment:ticular mean(a) the right to dispose of assets or have them dis- a) le droit de réaliser ou de faire réaliser le bien etposed of and to obtain satisfaction from the pro- d’être désintéressé par le produit ou les revenus deceeds of or income from those assets, in particular ce bien, en particulier en vertu d’un gage ou d’uneby virtue of a lien or a mortgage; hypothèque;(b) the exclusive right to have a claim met, in partic- b) le droit exclusif de recouvrer une créance, notam-ular a right guaranteed by a lien in respect of the ment en vertu de la mise en gage ou de la cession declaim or by assignment of the claim by way of a cette créance à titre de garantie;guarantee;(c) the right to demand the assets from, and/or to c) le droit de revendiquer le bien et/ou d’en réclamerrequire restitution by, anyone having possession or la restitution entre les mains de quiconque le détientuse of them contrary to the wishes of the party so ou en jouit contre la volonté de l’ayant droit;entitled;(d) a right in rem to the beneficial use of assets. d) le droit réel de percevoir les fruits d’un bien.3. The right, recorded in a public register and en- 3. Est assimilé à un droit réel, le droit, inscrit dansforceable against third parties, under which a right un registre public et opposable aux tiers, permettantin rem within the meaning of paragraph 1 may be d’obtenir un droit réel au sens du paragraphe 1.obtained, shall be considered a right in rem.4. Paragraph 1 shall not preclude actions for void- 4. Le paragraphe 1 ne fait pas obstacle aux actionsness, voidability or unenforceability as referred to in en nullité, en annulation ou en inopposabilité viséesArticle 4(2)(m). à l’article 4, paragraphe 2, point m).

84

References

Legislation

An Act for making more effectual Provision for the Government of the Province of Quebecin North America (G.B.), George III. 14, c. 83.

Bank Act, S.C. 1991, c. 46.— sec. 427 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . see at para. 44.

Bankruptcy and Insolvency Act, R.S.C. 1985, B-3.— sec. 2, version as amended by S.C. 2007, c. 29, s. 91, c. 36, s. 1. . . . See at para. 99, 113.— sec. 67 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . see at para. 108.— sec. 69 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . see at para. 118.— sec. 71, version as amended by S.C. 1997, c. 12, s. 67; S.C. 2004, c. 25, s. 44 . . . see at

para. 100.— sec. 86 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . see at para. 119.— sec. 136 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . see at para. 104.— sec. 81.1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . see at para. 120.

Bürgerliches Gesetzbuch (Germany).— § 1113 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . see at para. 131.— § 1191 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . see at para. 131.— § 1204 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . see at para. 79.— § 1205 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . see at para. 79, 80.— § 1373 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . see at para. 132.

Code civil des Français.— art. 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . see at para. 87.— art. 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . see at para. 88.— art. 2329 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . see at para. 86.— art. 2337 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . see at para. 132.— art. 2355 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . see at para. 132.— art. 2367 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . see at para. 84.

85

References

Code civil du Bas-Canada (Lower Canada), 29 Victoria, c. 41.— art. 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . see at para. 44.— art. 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . see at para. 44.— art. 2090 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . see at para. 106.— art. 2098 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . see at para. 106.

Code civil du Québec, S.Q. 1991, c. 64.— art. 1260 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . see at para. 87, 100.— art. 1298 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . see at para. 100.— art. 1299 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . see at para. 100.— art. 1370 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . see at para. 100.— art. 1384 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . see at para. 113.— art. 1641, version as amended by S.Q. 1992, c. 57, s. 716 . . . . . . . . . . . see at para. 64, 68.— art. 1741 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . see at para. 44.— art. 1745 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . see at para. 32.— art. 1749, version as amended by S.Q. 1998, c. 5, a. 3 . . . . . . . . . . . . . see at para. 107, 113.— art. 1852, version as amended by S.Q. 1998, c. 5, a. 8 . . . . . . . . . . . . . . . . . see at para. 109.— art. 2644 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . see at para. 30.— art. 2651, version as amended by S.Q. 1999, c. 90, s. 41 . see at para. 41, 44, 45, 50, 118.— art. 2654.1, version as introduced by S.Q. 1999, c. 90, a. 42 . . . . . . . . see at para. 48, 122.— art. 2655 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . see at para. 41.— art. 2656 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . see at para. 48.— art. 2657 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . see at para. 41.— art. 2660 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . see at para. 56, 83.— art. 2665 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . see at para. 83.— art. 2702, version as amended by S.Q. 2008, c. 20, a. 131 . . . . . . . . . . . see at para. 62, 68.— art. 2733 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . see at para. 53.— art. 2737 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . see at para. 53.— art. 2741 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . see at para. 45.— art. 2980 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . see at para. 61.— art. 3017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . see at para. 119.— art. 3120 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . see at para. 76.

Companies Act (U.K.), Elizabeth II. 1985, c. 6.— sec. 462 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . see at para. 93, 94, 96.

Companies (Floating Charges) Act (Scotland) (U.K.), Elizabeth II. 1961, c. 46.

Companies (Floating Charges and Receivers) Act (Scotland) (U.K.), Elizabeth II. 1972, c.67.

Convention on the Law Applicable to Contractual Obligations (EU), OJ 1980, L 266.

Convention on the Law Applicable to Contractual Obligations (EU), OJ 1980, L 266

86

References

— art. 12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . see at para. 76.

Council Regulation (EC) No 1346/2000 of 29 May 2000 on Insolvency Proceedings (EU),OJ 2000, L 160, 1–18.

— art. 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . see at para. 123.— art. 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . see at para. 130, 131, 133, 134, 136.

Federal Law-Civil Law Harmonization Act, No. 1, S.C. 2001, c. 4.

Federal Law-Civil Law Harmonization Act, No. 2, S.C. 2004, c. 25.

Insolvency Act 1986 (U.K.), Elizabeth II. 1986, c. 45.— sec. 306 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . see at para. 125.

Loi no. 2007-211 du 19 février 2007 instituant le fiducie (France), J.O. Feb. 21, 2007, 3052.

Loi sur l’application de la réforme du Code civil, L.Q. 1992, c. 57.

Loi sur le transfert de valeurs mobilières et l’obtention de titres intermédiés, S.Q. 2008, c.20.

Ordonnance n. 2006-346 du 23 mars 2006 relative aux sûretés (France), J.O. Mar. 24, 2006,4475.

Personal Property Securities Act (N.Z.), Elizabeth II. 1999.

Personal Property Securities Act (Cth.), Elizabeth II. 2009, No. 130.

Personal Property Security Act (British Columbia), R.S.B.C. 1996, c. 35.— sec. 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . see at para. 103.— sec. 20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . see at para. 103, 104.

Personal Property Security Act (Ontario), R.S.O. 1990, c. P.10.— sec. 2, version as amended by S.O. 2006, c. 34, Sched. E, s. 2 . . . . . . . . . . see at para. 23.— sec. 7, version as amended by S.O. 2006, c. 8, s. 126; S.O. 2006, c. 34, and S.O. 2006

c. 8, s. 126, Sched. E, s. 3 (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . see at para. 76.— sec. 20, version as amended by S.O. 2006, c. 8, s. 132 . . . . . . . . . . . . . . . . . . see at para. 26.— sec. 23 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . see at para. 26.— sec. 63, version as amended by S.O. 2000, c. 26, Sched. B, s. 16 (9) . . . . see at para. 25.— sec. 65, version as amended by S.O. 2000, c. 26, Sched. B, s. 16 and S.O. 2006, c. 34,

Sched. E, s. 21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . see at para. 25.— sec. 72 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . see at para. 24.— sec. 57.1, version as introduced by S.O. 2006, c. 34, Sched. E, s. 19 . . . . see at para. 23.

Uniform Commercial Code, Article 9, Secured Transactions (USA).

87

References

Cases

CanadaAuger c. Harvey [2000] R.J.Q. 2075 (Sup. Ct.) . . . . . . . . . . . . . . . . . . . . . . . . . . . see at para. 114.

Banque Canadienne Impériale de Commerce c. Marcano [1990] R.J.Q. 28, [1990] R.D.I. 6(C.A.) (cited to [1990] R.J.Q. 28) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . see at para. 53.

Banque Royale du Canada c. Mervis [2001] R.J.Q. 1885 (Sup. Ct.) . . . . . . . see at para. 107.

Banque Royale du Canada c. Mervis [2002] R.J.Q. 2268 (C.A.) . . . . . see at para. 107, 143.

Banque nationale du Canada c. William Neilson Ltd. [1991] R.J.Q. 712, 9 C.B.R. (3d) 86(Sup. Ct.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . see at para. 44.

Boisclair (Syndic de) c. Banque de Montréal [2001] R.J.Q. 2815 (C.A.) see at para. 31, 32,59.

Bédard (in re) [2005] R.J.Q. 1732, 22 C.B.R. (5th) 68 (C.A.) (cited to 22 C.B.R. (5th) 68)see at para. 106.

Caisse populaire Desjardins de Val-Brillant v. Blouin 2003 SCC 31, [2003] 1 S.C.R. 666,225 D.L.R. (4th) 577, 43 C.B.R. (4th) 36 (cited to [2003] 1 S.C.R. 666) . . . . . . . . . see atpara. 63–65, 76, 77, 143.

Caisse populaire de Lévis c. Maranda [1950] B.R. 249 . . . . . . . . . . . . . . . . . . . see at para. 53.

Canada 3000 Inc., Re; Inter-Canadian (1991) Inc. (Trustee of) 2006 SCC 24, [2006] 1S.C.R. 865, 269 D.L.R. (4th) 79, 20 C.B.R. (5th) 1 (cited to S.C.R.) . . . . see at para. 46.

Château d’Amos ltée (Syndic) [1999] R.J.Q. 2612 (Sup. Ct.) . . . . . . . . . see at para. 118, 121.

Civano Construction Inc. (in re) (1961), [1962] C.S. 45 . . . . . . . . . . . . . . see at para. 64, 116.

Droit de la famille — 3712 [2000] R.D.F. 589 (C.A.) . . . . . . . . . . . . . . . . . . . . . see at para. 114.

Fiduciaires de la Cité et du District de Montréal Ltée. c. Brosseau [1970] C.A. 419 (Q.) seeat para. 64.

Giffen (in re) [1998] 1 S.C.R. 91, 155 D.L.R. (4th) 332, 1 C.B.R. (4th) 115 (cited to [1998]1 S.C.R. 91) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . see at para. 37, 103–107, 109–111, 115, 143.

Grobstein c. A. Hollander and Son Ltd. [1963] B.R. 440 . . . . . . . . . . . . . . . . . . see at para. 62.

Hull (Ville de) c. Tsang [1998] R.D.I. 343 (C.M.) . . . . . . . . . . . . . . . . . . . . see at para. 122, 121.

Kostadinova Gantcheff (Syndic de) [1996] R.J.Q. 3030, [1996] R.D.I. 603 (Sup. Ct.) (citedto [1996] R.J.Q. 3030) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . see at para. 121.

Kouri c. Ferguson and Canada Maple Exchange Ltd. (1922), 33 B.R. 208 . see at para. 43.

Kowalski c. Trust Général du Canada [1976] C.A. 93 (Q.) . . . . . . . . . . . . . . . see at para. 106.

88

References

Lacoursière c. Westmount (Ville de) [1998] R.J.Q. 1784 (Sup. Ct.) . . . . . . . . see at para. 121.

Lefaivre c. Côté [1976] C.A. 691 (Q.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . see at para. 114.

Lefebvre (Syndic de); Tremblay (Syndic de) 2004 SSC 63, [2004] 3 S.C.R. 326, 244 D.L.R.(4th) 513, 7 C.B.R. (5th) 243 (cited to [2004] 3 S.C.R. 326) . . . see at para. 36, 109, 114,124, 143.

Loewen c. MacCabees Mutual Life Insurance Co. [1973] C.A. 1094 (Q.) . . see at para. 53.

London Guarantee & Accident Co. v. George (1906), 3 W.L.R. 236 (K.B. Man.) . . . see atpara. 14.

Maschinenfabrik Rieter AG c. Canadian Fidelity Mills Ltd. [2005] R.J.Q. 2829 (C.A.) seeat para. 113.

Massouris (syndic de) [2002] R.J.Q. 901, [2002] J.Q. no 595 (C.A.) . . . . . . see at para. 107.

Municipalité de Baie-Trinité c. Caisse populaire Desjardins de Baie-Comeau J.E. 2003-1248, [2003] R.D.I. 460 (C.A.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . see atpara. 43.

Musée des Sciences Naturelles de Québec Inc. (syndic) c. Banque de Montréal J.E. 98-611,2 C.B.R. (4th) 224, [1998] J.Q. no 814 (C.A. Q.) (cited to 2 C.B.R. (4th) 224) . . see atpara. 116.

Ouellet (Syndic de) 2004 SCC 64, [2004] 3 S.C.R. 348, 244 D.L.R. (4th) 532, 7 C.B.R.(5th) 277 (cited to [2004] 3 S.C.R. 348) . . . . . . . . . . see at para. 36, 38, 112, 113, 124, 143.

Québec Inc. (Syndic de) [1998] R.D.I. 587 (Sup. Ct.) . . . . . . . . . . . . . . . . . . . . . see at para. 118.

Roy (Syndic de) [2006] R.J.Q. 751 (C.A.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . see at para. 113.

Sprung Instant Structures Ltd. v. Caswan Environmental Services Services Inc. [1997] 5W.W.R. 280, 45 C.B.R. (3d) 47 (Q.B. Alta.) (cited to 45 C.B.R. (3d) 47) . . . . . . . . see atpara. 105.

Wilfrid Noêl & fils ltée. c. Bouchard J.E. 2000-477, [2000] R.R.A. 84, [2000] J.Q. no 474(C.A.) (cited to [2000] J.Q. no 474) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . see at para. 116.

France

Beta Editorial ./. Charrière (in re Edi Loire), Cass. Com., Nov. 19, 2003, N ◦ 01-01.137,Bull. civ. 2003, IV, no. 174 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . see at para. 84.

Germany

BGH, Urt. June 18, 1980 — VIII ZR 119/79 (Frankfurt), BGHZ 77, 274 =̂ NJW 1980, 2245(cited to NJW 1980, 2245) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . see at para. 140.

89

References

United Kingdom

Aluminium Industrie Vaassen BV v Romalpa Aluminium Ltd [1976] 1 W.L.R. 676 . see atpara. 89.

Barclays Bank Ltd v Quistclose Investment Ltd (1968), [1970] A.C. 567 (H.L.) . . . . see atpara. 89.

Dearle v Hall (1823) 3 Russ. 1, 38 E.R. 475 (H.C. Ch.) (cited to 38 E.R. 475) . . . . . . see atpara. 22.

Helby v Matthews [1895] A.C. 471 (H.L.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . see at para. 89.

Re Panama, New Zealand and Australian Royal Mint Company (1870), 5 Ch. App. 318 seeat para. 21, 89.

Re Yorkshire Woolcombers Association [1903] 2 Ch. 284 (C.A. Civ.) . . . . . . see at para. 21.

Sharp v Thomson 1997 S.L.T. 636, [1997] 1 B.C.L.C. 603 (H.L. Scot.) (cited to [1997] 1B.C.L.C. 603) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . see at para. 93, 94, 124, 143.

Twyne’s Case (1601), 3 Co. Rep. 80, 76 E.R. 809 (Star Chamber) (cited to 76 E.R. 809) seeat para. 18.

United States

City of Philadelphia et al. v. New Jersey, 437 U.S. 617, 98 S.Ct. 2531 (1978) (cited to 98S.Ct. 2531) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . see at para. 10.

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